Firm growth and R&D investment: SVAR evidence from the world's top R&D investors. Issue 5 (28th May 2019)

• Record Type: Journal Article
• Authors: Coad, Alex; Grassano, Nicola
• Is Part Of: Industry and innovation. Volume 26:Issue 5(2019)
• Page Start: 508
• Page End: 533
• Publication Date: 2019-05-28
• Subjects: R&D investment -- firm growth -- market capitalization -- SVAR -- sales growth; L25 -- O30; Industries -- Periodicals; Industrial management -- Periodicals; Industrial policy -- Periodicals; 338.005
• DOI: 10.1080/13662716.2018.1459295
• Languages: English
• ISSNs: 1366-2716

Abstract

Abstract: Understanding causal relationships among key economic variables is crucial for policy makers, who wish to e.g. stimulate private R&D growth. To this end, we applied a technique recently imported from the Machine Learning community (Structural Vector Autoregressions (SVARs) identified using Independent Components Analysis (ICA)) to a data-set of the world's largest R&D investors. Our analysis highlights the key role of firm growth in the areas of employment and sales, rather than growth of profits or market capitalization, in stimulating R&D growth. R&D growth appears toward the end of the causal ordering of the growth process. Our results suggest that policies to increase private R&D would do better to target growth of sales and employment rather than market capitalization or profits.