R&D and the growth of firms: empirical analysis of a panel of Italian firms

This paper deals with the growth of firms and with their innovative activities. The main hypothesis of the paper maintains that firms with a strong commitment to R&D have a higher rate of growth because they succeed in the product market. After a review of the related literature, the paper presents an econometric analysis of the R&D-growth of firms relation based on a database of Italian firms. Data on a sample of 500 firms, with time series in the range 1989-1997, were drawn from the Mediocredito survey of Italian manufacturing. Descriptive analysis shows that the sales growth rate of firms with R&D is higher than that of firms without R&D. Econometric analysis is performed in two steps. First we apply a panel unit root test [Im, K., Pesaran, H., Shin, Y., 1997. Testing for Unit Roots in Heterogeneous Panels, DAE, University of Cambridge, Mimeo] to verify whether the firm size significantly affects firm growth. The test confirms Gibrat's Law that firm size has a stochastic trend. Second, we explore whether there are variables with stochastic trends that could account for firm size. According to our estimates the growth rate of firms is positively correlated with research intensity. In these estimates, a further interesting result is that investment in ICT is not significant or shows a parameter with negative sign. (C) 2002 Elsevier Science B.V. All rights reserved.