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The Heterogeneous Impact of Market Size on Innovation: Evidence from French Firm-Level Exports

Author

Listed:
  • Philippe Aghion

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CdF (institution) - Collège de France, LSE - Department Mathematics [London] - LSE - London School of Economics and Political Science)

  • Antonin Bergeaud

    (Banque de France - Banque de France - Banque de France, CEP - LSE - Centre for Economic Performance - LSE - London School of Economics and Political Science)

  • Matthieu Lequien

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, Banque de France - Banque de France - Banque de France, INSEE - Institut national de la statistique et des études économiques (INSEE))

  • Marc Melitz

    (Harvard University, NBER - National Bureau of Economic Research [New York] - NBER - The National Bureau of Economic Research)

Abstract

We analyze how demand conditions faced by a firm in its export markets affect its innovation decisions. We exploit exogenous firm-level export demand shocks and find that firms respond by patenting more; furthermore, this response is driven by the subset of initially more productive firms. The patent response arises two to five years after the shock, highlighting the time required to innovate. In contrast, the demand shock raises contemporaneous sales and employment for all firms regardless of their productivity. This skewed innovation response to common demand shocks arises naturally from a model of endogenous innovation and competition with firm heterogeneity.

Suggested Citation

  • Philippe Aghion & Antonin Bergeaud & Matthieu Lequien & Marc Melitz, 2024. "The Heterogeneous Impact of Market Size on Innovation: Evidence from French Firm-Level Exports," Post-Print halshs-04798437, HAL.
    • Handle: RePEc:hal:journl:halshs-04798437
    DOI: 10.1162/rest_a_01199
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