This project explores the role of firm innovation in explaining the recent trend of increasing market concentration in the U.S. economy. It measures innovation input and output at the firm-level using research and development (R&D) surveys together with data on production-side activities. Using this detailed data, the project documents the concentration of innovation activity and its evolution over time, where the concentration innovation is measured as the relation between firm size and R&D inputs and research productivity. The project further investigates the impact of innovation concentration on the aggregate economy by distinguishing between two types of innovation---internal and external innovation. The former measures firms? quality improvements of their own products, and the latter measures firms? attempts to gain market share from other firms? product lines. The project then studies the impact of innovation concentration on aggregate growth and social welfare for each type of innovation through the lens of an R&D-based growth model.
The project measures firm-level R&D productivity by the input-output ratio for each type of innovation. To distinguish between internal and external innovation, the project leverages unique information on product innovation from the R&D surveys together with data on product-level sales. Innovation concentration is then estimated by projecting R&D variables on measures of firm size while controlling for firm characteristics. The measured patterns of firm-level innovation are used to differentiate between competing R&D based theories of rising market concentration. The project further estimates the impact of currently experienced concentration on aggregate growth and welfare.
This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.
