Research and Development and the Schumpeterian Hypothesis: Alternate Approach

Abstract

There have been numerous empirical studies investigating the relationship between firm size and inventive activity' since Schumpeter first argued that the large-scale enterprise .. has come to be the most powerful engine of [economic] progress.. . [24, 106]. The important policy issue is whether large firm size is associated with greater innovative output, but measuring innovative output is very difficult. Consequently, many empirical studies have focused on the relationship between firm size and some measure of innovative inputs, and argue that inferences can be made concerning innovative output and firm size as long as the production of innovations is characterized by nondecreasing returns to scale.2 Fisher and Temin [4] contend that the empirical tests relating innovative inputs and firm size are inappropriate, for even if the production of innovation is characterized by increasing returns to scale, a positive and increasing relationship between R&D employment and firm size is neither necessary nor sufficient for there to be an increasing and positive relationship between innovative output and firm size.3 The Fisher and Temin results are controversial. In review articles on innovation and monopoly power, Markham [16] states he does not accept the conclusions of Fisher and Temin, while Kamien and Schwartz [10] mention Fisher and Temin but discuss the empirical literature without further reference to their