Munich Personal RePEc Archive

Growth through Inter-sectoral Knowledge Linkages

Cai, Jie and Li, Nan (2012): Growth through Inter-sectoral Knowledge Linkages. Published in: Review of Economic Studies , Vol. 86, No. 5 (1 October 2019): pp. 1827-1866.

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The majority of innovations are developed by multi-sector firms. The knowledge needed to invent new products is more easily adapted from some sectors than from others. We study this network of knowledge linkages between sectors and its impact on firm innovation and aggregate growth. We first document a set of sectoral-level and firm-level observations on knowledge applicability and firms’ multisector patenting behaviour. We then develop a general equilibrium model of firm innovation in which inter-sectoral knowledge linkages determine the set of sectors a firm chooses to innovate in and how much R&D to invest in each sector. It captures how firms evolve in the technology space, accounts for cross-sector differences in R&D intensity, and describes an aggregate model of technological change. The model matches new observations as demonstrated by simulation. It also yields new insights regarding the mechanism through which sectoral fixed costs of R&D affect growth.

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