Abstract :
We presentanendogenousgrowthmodelthat explainstheevolutionofthefirstand
secondmomentsofproductivitygrowthattheaggregateandfirmlevelduringthepost-
war period.Growthisdrivenbythedevelopment ofboth(i)idiosyncraticR&Dinnovations
and (ii)generalinnovationsthatcanbefreelyadoptedbymanyfirms.Firm-levelvolatility
is affectedprimarilybytheSchumpeteriandynamicsassociatedwiththedevelopmentof
R&Dinnovations.Thevarianceofaggregateproductivitygrowthisdrivenbythearrival
rate ofgeneralinnovations.Ceterisparibus,theshareofresourcesspentondevelopmentof
general innovationsincreaseswiththestabilityofthemarketshareoftheindustryleader.
As marketsharesbecomelesspersistent,themodelpredictsanendogenousshiftinthe
allocationofresourcesfromthedevelopmentofgeneralinnovationstothedevelopmentof
R&Dinnovations.ThisresultsinanincreaseinR&D,anincreaseinfirm-levelvolatility,and
a declineinaggregatevolatility.Theeffectonproductivitygrowthisambiguous.
On theempiricalside,thispaperpresentsnewcross-countryevidencethatR&D
subsidiesarenotsignificantlyassociatedwithhighergrowthbutareassociatedwithlower
aggregate volatility.Italsodocumentsanupwardtrendintheinstabilityofmarketshares,a
positiveassociationbetweenfirmvolatilityandR&Dspending,andanegativeassociation
acrosssectorsbetweenR&Dandhowcorrelatedthesectoriswiththerestoftheeconomy
