Does Innovation Lead to Firm Growth? Explorative versus Exploitative Innovations
Swedish Entrepreneurship Forum Working Paper No. 2016:46
43 Pages Posted: 4 Jul 2017
Date Written: October 31, 2016
Abstract
In this paper we examine the relationship between innovation and firm growth. We implement a classification of innovations based on whether they are explorative or exploitative, taking advantage of a unique Swedish dataset for the period 1997 to 2012. The data allows us to construct each firm’s innovation history. Panel regression estimations, together with an instrumental variable method, confirm a significant and positive effect of both exploitative and explorative innovation on firms’ employment growth. More radical explorative innovations are shown to have a more persistent growth effect, while exploitative innovation increases labor demand in the short run. We also provide empirical findings regarding the effect of innovations distributed on size classes and different ownership structures.
Keywords: Innovation, Firm Growth, Exploration Innovation, Exploitation Innovation
JEL Classification: O31, L25
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