No 2016/13 Knowledge diversity and firm growth

Searching for a missing link

Abstract

The link between knowledge and firm growth has been a core topic in economics of innovation for a long time. However, despite strong theoretical arguments, empirical evidence remains inconclusive. One important reason for this conundrum may be the failure of standard indicators to comprehensively capture firm innovation activities. We contribute to overcoming this limitation by zooming in on the knowledge processes that drive variegated forms of innovation and aim thereby to establish a solid relationship with firm growth. The paper draws on the differentiated knowledge base approach, distinguishing between analytical, synthetic, and symbolic knowledge, and measures these types of knowledge with detailed longitudinal linked-employer-employee micro data from Sweden. Econometric findings indicate positive relationships between the three knowledge types, in particular combinations thereof, and firm growth. These relationships remain robust in a wide range of models. Our analysis therefore suggests that the seemingly weak relationship between firm growth and innovation may be explained by the narrow measurement concepts that have dominated in this literature so far.