R&D and Product Dynamics

In endogenous growth models and mid-term business cycles as seen in the works of Romer (1987) and Comin and Gertler (2006), it is assumed that there are positive effects of product variety. Using product-firm level data, we examine these effects empirically. Using data from the Census of Manufacture, the Survey of Research and Development (R&D), and the Basic Survey of Japanese Business Structure and Activities, we construct a database that includes number of products, R&D expenditures, and data on firm performance. We find that the number of products in R&D firms is higher than that of non-R&D firms, and that R&D firms are more sensitive than non-R&D firms for product dynamics. In the Poisson regression model, we also observe positive effects of R&D activities on product dynamics in empirical studies. As the increase in product variety contributes to productivity growth, our empirical results support the government's policies for enhancing R&D activities.