Empirical patterns of firm growth and R&D investment: a quality ladder model interpretation

We present a model of endogenous Um growth with R&D investment and stochastic innovation as the engines of growth. The model for Um growth is a partial equilibrium model drawing on the quality ladder models in the macro growth literature, but also on the literature on patent races and the discrete choice models of product dihrentiation. We examine to what extent the assumptions and the empirical content of our model are consistent with many of the the Udings that have emerged from empirical studies of growth, productivity, R&D and patenting at the Um level. The analysis shows that the model Ws well with a number of empirical patterns such as (i) a skewed size distribution of Ums with persistent dihrences in Um sizes, (ii) Um growth independent of Um size, as stated in the so-called Gibrat's law, and (iii) R&D investment proportional to sales.