Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Working Knowledge
Business Research for Business Leaders
  • Browse All Articles
  • Popular Articles
  • Cold Call Podcast
  • Managing the Future of Work Podcast
  • About Us
  • Book
  • Leadership
  • Marketing
  • Finance
  • Management
  • Entrepreneurship
  • All Topics...
  • Topics
    • COVID-19
    • Entrepreneurship
    • Finance
    • Gender
    • Globalization
    • Leadership
    • Management
    • Negotiation
    • Social Enterprise
    • Strategy
  • Sections
    • Book
    • Podcasts
    • HBS Case
    • In Practice
    • Lessons from the Classroom
    • Op-Ed
    • Research & Ideas
    • Research Event
    • Sharpening Your Skills
    • What Do You Think?
    • Working Paper Summaries
  • Browse All
    Growth Through Heterogeneous Innovations
    23 Nov 2010Working Paper Summaries

    Growth Through Heterogeneous Innovations

    by Ufuk Akcigit and William R. Kerr
    Economists have long recognized that innovation is central to economic growth and development. But as a profession, economics is just beginning to model the many types of innovations that exist and the amazing heterogeneity in the firms that conduct research and development--from General Electric to Silicon Valley start-ups. This paper provides theoretical and empirical evidence surrounding how firm size influences the types of R&D undertaken, with particular focus on choices to pursue exploration R&D (capturing new product lines) versus exploitation R&D (refining current product lines internally). From the choices made by individual firms and new entrepreneurs, the model then builds to consider aggregate economic growth. Research was conducted by Ufuk Akcigit of the University of Pennsylvania and William R. Kerr of Harvard Business School. Key concepts include:
    • Exploration R&D seeks to create new technologies and products for the company to build market leadership. Exploitation R&D focuses on improving existing product lines that the firm already owns, in order to build stronger profits.
    • Large firms have many product lines and thus naturally engage in extensive exploitation R&D to improve their current technologies. Small firms and new start-ups have a comparative advantage for undertaking exploration R&D.
    • Quantitative tests find that exploration R&D has had a greater spillover effect into economic growth than exploitation R&D in the United States over the last couple of decades. This illustrates one channel through which small, innovative businesses and start-ups can play an especially important role in economic growth.
    LinkedIn
    Email

    Author Abstract

    We study how exploration versus exploitation innovations impact economic growth through a tractable endogenous growth framework that contains multiple innovation sizes, multi-product firms, 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 firm size as exploitation R&D. The resulting framework conforms to many regularities regarding innovation and growth differences across the firm size distribution. We also incorporate patent citations into our theoretical framework. The framework generates a simple test using patent citations that indicates that entrants and small firms have relatively higher growth spillover effects.

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: October 2010
    • HBS Working Paper Number: 11-044
    • Faculty Unit(s): Entrepreneurial Management
      Trending
        • 02 Feb 2023
        • Research & Ideas

        Why We Still Need Twitter: How Social Media Holds Companies Accountable

        • 27 Jan 2023
        • Op-Ed

        Have We Lost Sight of Integrity?

        • 17 Jan 2023
        • In Practice

        8 Trends to Watch in 2023

        • 20 May 2019
        • Research & Ideas

        Activist CEOs Are Rising Up—and Their Customers Are Listening

        • 25 Jan 2022
        • Research & Ideas

        More Proof That Money Can Buy Happiness (or a Life with Less Stress)

    William R. Kerr
    William R. Kerr
    Dimitri V. D'Arbeloff - MBA Class of 1955 Professor of Business Administration
    Unit Head, Entrepreneurial Management
    Contact
    Send an email
    → More Articles
    Find Related Articles
    • Innovation and Invention
    • Economics
    • Research and Development
    • Technology

    Sign up for our weekly newsletter

    Interested in improving your business? Learn about fresh research and ideas from Harvard Business School faculty.
    This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
    ǁ
    Campus Map
    Harvard Business School Working Knowledge
    Baker Library | Bloomberg Center
    Soldiers Field
    Boston, MA 02163
    Email: Editor-in-Chief
    →Map & Directions
    →More Contact Information
    • Make a Gift
    • Site Map
    • Jobs
    • Harvard University
    • Trademarks
    • Policies
    • Accessibility
    • Digital Accessibility
    Copyright © President & Fellows of Harvard College