Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/31852
Authors: 
Coad, Alexander
Rao, Rekha
Year of Publication: 
2007
Series/Report no.: 
Papers on economics and evolution 0710
Abstract: 
We apply a panel vector autoregression model to a firm-level longitudinal database to observe the co-evolution of sales growth, employment growth, profits growth and growth of R&D expenditure. Contrary to expectations, profit growth seems to have little detectable effect on R&D investment. Instead, firms appear to increase their total R&D expenditure following growth in sales and growth of employment. In a sense, firms behave ‘as if’ they aim for a roughly constant ratio of R&D to employment (or sales). We observe heterogeneous effects for growing or shrinking firms however, suggesting that firms are less willing to reduce their R&D levels following a negative growth shock than they are willing to increase R&D after a positive shock.
Subjects: 
Firm Growth
Panel VAR
R&D expenditure
Industrial Dynamics
JEL: 
L20
L10
O32
Document Type: 
Working Paper

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