Abstract
This article explores the link from firm size and market concentration to patenting and R&D in a sample of manufacturing firms in Denmark. The Schumpeterian notion of firm size and market concentration suggests that the combined effects by these structural determinants of industrial innovation are inducive to industrial innovation. Previous studies rely mainly on large-firm evidence, and most often evidence is based on truncated samples. In short, evidence on how structural determinants induce industrial innovation remains sparse at best. On the basis of the two-stage correction procedure suggested by Heckman [1, 2] the impact of firm size and market concentration on patenting and R&D activity is investigated on new firm-level data developed in cooperation with the Danish Patent Office and the Danish Institute for Studies in Research and Research Policy. The results indicate that the Schumpeterian notion is more subtle than originally conceived. Hence, in a simple model setting both firm size and market concentration are found to induce increased patenting activity as well as increased R&D effort in manufacturing. Yet, because selection bias is likely to take place, we should not dismiss the discussion too hastily in favor of one school of thought for another.
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