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The Heterogeneous Impact of Market Size on Innovation: Evidence from French Firm-Level Exports

Author

Listed:
  • Philippe Aghion

    (Collège de France, LSE, and PSE)

  • Antonin Bergeaud

    (Banque de France and CEP)

  • Matthieu Lequien

    (Insee, Banque de France and PSE)

  • Marc J. Melitz

    (Harvard University and NBER)

Abstract

We analyze how demand conditions faced by a firm in its export markets affect its innovation decisions. We exploit exogenous firm-level export demand shocks and find that firms respond by patenting more; furthermore, this response is driven by the subset of initially more productive firms. The patent response arises two to five years after the shock, highlighting the time required to innovate. In contrast, the demand shock raises contemporaneous sales and employment for all firms regardless of their productivity. This skewed innovation response to common demand shocks arises naturally from a model of endogenous innovation and competition with firm heterogeneity.

Suggested Citation

  • Philippe Aghion & Antonin Bergeaud & Matthieu Lequien & Marc J. Melitz, 2024. "The Heterogeneous Impact of Market Size on Innovation: Evidence from French Firm-Level Exports," The Review of Economics and Statistics, MIT Press, vol. 106(3), pages 608-626, May.
    • Handle: RePEc:tpr:restat:v:106:y:2024:i:3:p:608-626
    DOI: 10.1162/rest_a_01199
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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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