Growth through Heterogeneous Innovations

Abstract

We study how exploration versus exploitation innovations impact economic growth through a tractable endogenous growth framework that contains multiple innovation sizes, multi-product …rms, and entry/exit. Firms invest in exploration R&D to acquire new product lines and exploitation R&D to improve their existing product lines. We model and show empirically that exploration R&D does not scale as strongly with …rm size as exploitation R&D. The resulting framework conforms to many regularities regarding innovation and