Product and Process Innovation in a Growth Model of Firm Selection

Recent empirical evidence based on firm level data emphasizes firm heterogeneity in innovation activities and the different effects of process and product innovations on the productivity level and productivity growth. To match this evidence, this paper develops an endogenous growth model with two sources of firm heterogeneity: production efficiency and product quality.Both attributes evolve endogenously through firms’ innovation choices. Growth is driven by innovation and self-selection of firms and sustained by entrants who imitate incumbents. Calibrating the economy to match the Spanish manufacturing sector, the model enables to quantify the different effects of selection, innovation, and imitation as well as product and process innovation on growth. Compared to single attribute models of firm heterogeneity, the model provides a more complete characterization of firms’ innovation choices explaining the partition of firms along different innovation strategies and generating consistent firm size distributions.endogenous growth theory, firm dynamics, heterogeneous firms, productivity, quality, innovation

Essays on Firm Dynamics, Endogenous Growth and International Trade.

Recent empirical firm level studies reveal the structural heterogeneity of firms in process and product innovation, as well as the central role of product quality in determining world trade patterns and intensities. This calls for a better understanding of the link between firm heterogeneity and the innovation and export decisions of firms which are at the base of productivity growth and, hence, economic growth and development. My dissertation contributes to this debate focusing on the supply side. I propose a novel way to model the production technology of firms by introducing two attributes of firm heterogeneity: cost efficiency and product quality. The goal of the first thesis chapter is to study the effects of process and product innovation on firm dynamics, productivity and endogenous long run growth. In the second chapter an open economy framework with trade between symmetric countries is analyzed. Here the focus is on quantifying the impact of trade as well as trade liberalization on firm innovation dynamics and productivity- and aggregate growth. The third chapter abstracts from endogenous growth and examines the role of the two attributes of firm heterogeneity in shaping the trade patterns and intensities within and across developed and developing countries.

RIO Country Report 2016: Czech Republic

The 2016 series of the RIO Country Report analyses and assesses the development and performance of the national research and innovation system of the EU-28 Member States and related policies with the aim of monitoring and evaluating the EU policy implementation as well as facilitating policy learning in the Member States.JRC.B.7-Knowledge for Finance, Innovation and Growt

Startups and employment following the COVID-19 pandemic: a calculator

Early indicators suggest that startup activity across countries is heavily affected by the COVID-19 pandemic and the associated lockdowns. At the same time, empirical evidence has shown that such disturbances may have long-lasting effects on aggregate employment. This paper presents a calculator which can be used to compute these effects under different scenarios regarding (i) the number of startups, (ii) the growth potential of startups and (iii) the survival rate of young firms. We apply our calculator to the United States and four European countries: France, Germany, Italy and Spain. We find that employment losses can be substantial and last for more than a decade, even when the assumed slump in startup activity is only short-lived. Almost half of the long-run losses is caused by fewer high-growth firms, ‘gazelles’, starting up during the pandemic. Our results also suggest that the long-run effects of the pandemic may vary across countries substantially with Germany possibly being shielded due to its low business dynamism

Firm and Technology Dynamics in the Short- and Long-Run: A Macroeconomic Model for Research and Innovation Policy Evaluation

We develop a dynamic stochastic general equilibrium model with firm and technology dynamics to assess the impact of a rich set of innovation policies. We explore the aggregate and cross-sectional effects of an R&D tax credit, corporate taxes, and policies affecting firms’ access to credit. Two main results emerge. First, the aggregate impact of these policies is driven by general equilibrium effects operating via the government budget, the labor market and via equilibrium entry of firms. In contrast, their stimulating effect on innovation and productivity growth has a negligible impact on aggregate income and employment. Second, we find that uniform policies have heterogeneous effects on firms and their size distribution which generate rich feedbacks to the aggregate economy.JRC.B.7-Knowledge for Finance, Innovation and Growt

EU start-up calculator: impact of COVID-19 on aggregate employment: Scenario analysis for Austria, Belgium, Germany, Hungary, italy and Spain

Early data show that the COVID-19 pandemic has affected particularly strongly start-up activity. This may have dramatic and lasting effects on aggregate employment which persist as the cohort of new firms age. To assess the impact, we developed the EU start-up calculator. This is an empirical tool that allows to conduct scenario analysis to compute the impact that the disruption of start-up activity has on aggregate employment on EU Member States and their economic sectors. In particular, we simulate a strong (i.e. of magnitude equivalent to the Great Recession) but short-lived (i.e. lasting one-year) crisis in Austria, Belgium, Germany, Hungary, Italy and Spain. This shock generates important and persistent job losses in all the countries that range between 0.7 (Belgium) to 2.2% (Austria) in 2020 and adds to a cumulative employment loss for the period 2020-2030 that ranges between 82 thousand (Belgium) to 1186 thousand (Italy). The negative impact is particularly high in Austria, Hungary, Italy and Spain, as well as in the service sector, which are characterized by a high firm turnover and that rely on start-ups and young firms for job creation. We also find that in most countries the deterioration of the survival rate of young firms plays an important role in driving employment, seconded by the number of new entrants. As a consequence, policies aimed at supporting young firms and incentivizing the creation of new ones may significantly mitigate the medium-term effect of the pandemic. In fact, when we simulate bounce-back scenarios where the number of firms entering the economy rapidly increases in 2021, in every country the outlook is significantly improved, the recovery is faster and the aggregate job loss is lower.JRC.B.7-Knowledge for Finance, Innovation and Growt

EU start-up calculator: impact of COVID-19 on aggregate employment: Scenario analysis for Bulgaria, Croatia, Czechia, Luxemburg, Netherlands, Poland, Romania, Slovakia and Slovenia

Early data show that the COVID-19 pandemic has affected particularly strongly start-up business activity. This may have dramatic and lasting effects on aggregate employment which persist as the cohort of new firms age. To assess such an impact, we developed the EU start-up calculator. A first application targeted to Austria, Belgium, Germany, Hungary, Italy and Spain is discussed in Benedetti Fasil, Sedláček and Sterk (2020a) and a second focusing Denmark, Estonia, Finland, France, Latvia, Lithuania, Portugal and Sweden is presented in Benedetti Fasil, Sedláček and Sterk (2020b). The EU start-up calculator is an empirical tool that allows to conduct scenario analysis to compute the impact that the disruption of start-up activity has on aggregate employment on EU Member States and their economic sectors. In this paper, we simulate the effects of a strong (i.e. of magnitude equivalent to the Great Recession of 2008 and 2009) but short-lived (i.e. lasting one-year) crisis in Bulgaria, Croatia, Czechia, Luxemburg, the Netherlands, Poland, Romania, Slovakia and Slovenia. This shock generates important and persistent job losses in all the countries ranging between 0.25 (Luxemburg) and 6.9% (Slovakia) of negative deviation from the employment trend in 2020 and results in a computed potential cumulative loss of jobs for the period 2020-2030 ranging from 5,600 (Luxemburg) to 2179,000 (Poland). The potential negative impact is particularly high in Bulgaria, Croatia, Poland, Romania and Slovakia as well as in the service sector, which are characterized by a high firm turnover and a reliance on start-ups and young firms for job creation. We also find that in most countries the deterioration of the survival rate of young firms plays an important role in driving employment, seconded by the number of new entrants. As a consequence, policies aimed at supporting young firms and incentivizing the creation of new ones may significantly mitigate the medium-term effect of the pandemic. In fact, when we simulate bounce-back scenarios where the number of firms entering the economy rapidly increases in 2021, in every country the outlook is significantly improved, the recovery is faster and the aggregate job loss is lower.JRC.B.7-Knowledge for Finance, Innovation and Growt

EU start-up calculator: impact of COVID-19 on aggregate employment: Scenario analysis for Denmark, Estonia, Finland, France, Latvia, Lithuania, Portugal and Sweden

Early data show that the COVID-19 pandemic has affected particularly strongly start-up business activity. This may have dramatic and lasting effects on aggregate employment which persist as the cohort of new firms age. To assess such an impact, we developed the EU start-up calculator. A first application targeted to Austria, Belgium, Germany, Hungary, Italy and Spain is discussed in Benedetti Fasil, Sedláček and Sterk (2020). The EU start-up calculator is an empirical tool that allows to conduct scenario analysis to compute the impact that the disruption of start-up activity has on aggregate employment on EU Member States and their economic sectors. In this paper, we simulate the effects of a strong (i.e. of magnitude equivalent to the Great Recession of 2008 and 2009) but short-lived (i.e. lasting one-year) crisis in Denmark, Estonia, Finland, France, Latvia, Lithuania, Portugal and Sweden. This shock generates important and persistent job losses in all the countries ranging between 0.9 (Portugal) and 4.5% (Latvia) from the employment trend in 2020 and results in a computed potential cumulative loss of jobs for the period 2020-2030 ranging from 59,000 (Estonia) to 798,000 (France). The potential negative impact is particularly high in Estonia, France, Latvia, Lithuania and Portugal, as well as in the service sector, which are characterized by a high firm turnover and a reliance on start-ups and young firms for job creation. We also find that in most countries the deterioration of the survival rate of young firms plays an important role in driving employment, seconded by the number of new entrants. As a consequence, policies aimed at supporting young firms and incentivizing the creation of new ones may significantly mitigate the medium-term effect of the pandemic. In fact, when we simulate bounce-back scenarios where the number of firms entering the economy rapidly increases in 2021, in every country the outlook is significantly improved, the recovery is faster and the aggregate job loss is lower.JRC.B.7-Knowledge for Finance, Innovation and Growt

R&D tax credits and their macroeconomic impact in the EU: an assessment using QUEST III

R&D tax credits are currently used by 25 Member States as a means to stimulate R&D investment and, ultimately, economic growth and employment. This paper is a first attempt to provide an in-depth analysis of the structural economic factors that, other things equal, affect or condition the potential macroeconomic impacts of expanding (or start implementing) R&D tax credit schemes. The analysis is based on the European Commission's QUEST III semi-endogenous growth model. Our main conclusion is that, while the short and medium-term impacts of increased R&D tax credits on Member States' GDP and other macroeconomic aggregates are overall significantly positive, there remains space to substantially improve the cost-effectiveness of these policies.JRC.B.7-Knowledge for Finance, Innovation and Growt

Current Challenges in Fostering the European Innovation Ecosystem

The present report discusses innovation challenges under the following headings: The 3% R&D target and industrial structure: is it still a relevant goal? if we cannot achieve the 3% target, does it make sense to keep it? Technology diffusion: how can we combat its sluggishness and speed up adoption? Access to finance: is the large amount of liquidity being funnelled to "zombie" companies instead of highly innovative ones? Universities and skills: are higher education institutions adequately playing their role in driving innovation? The governance of the R&I system: how to remove administrative barriers and increase flexibility? Can SSH research contribute more to shaping R&I policies?JRC.B.7-Knowledge for Finance, Innovation and Growt