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on Entrepreneurship |
| By: | Eklund, Johan (Jönköping International Business School (JIBS) and CESIS); Wiberg, Daniel (Jönköping International Business School (JIBS) and CESIS) |
| Abstract: | Economic theory tells us that abnormal firm and industry profits will not persist for any significant length of time. Any firm or industry making profits in excess of the normal rate of return will attract entrants and this competitive process will erode profits. However, a substantial amount of research has found evidence of persistent profits above the norm. Barriers to entry and exit, is an often put forward explanation to this anomaly. In the absence of, or with low barriers to entry and exit, this reasoning provides little help in explaining why these above-norm profits arise and persist. In this paper we explore the links between the systematic search for knowledge and the persistence of profits. By investing in research and development firms may succeed in creating products or services that are preferred by the market and/or find a more cost efficient method of production. Corporations that systematically invest in research and development may, by doing this, offset the erosion of profits and thereby have persistently high profits which diverge from the competitive return.We argue that even in the absence of significant barriers to entry and exit profits may persist. This can be accredited to a systematic search for knowledge through research and development. |
| Keywords: | Persistence of Profits; Profit Dynamics; R&D; Innovation Activity; Knowledge |
| JEL: | C10 C32 O10 O32 |
| Date: | 2007–03–13 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cesisp:0085&r=ent |
| By: | Laia Castany (Faculty of Economics, University of Barcelona); Enrique Lopez-Bazo (Faculty of Economics, University of Barcelona); Rosina Moreno (Faculty of Economics, University of Barcelona) |
| Abstract: | This paper investigates the extent to which the gap in total factor productivity between small and large firms is due to differences in the endowment of factors determining productivity and to the returns associated with these factors. We place particular emphasis on the contribution of differences in the propensity to innovate and in the use of skilled labor across firms of different size. Empirical evidence from a representative sample of Spanish manufacturing firms corroborates that both differences in endowments and returns to innovation and skilled labor significantly contribute to the productivity gap between small and large firms. In addition, it is observed that the contribution of innovation to this gap is caused only by differences in quantity, while differences in returns have no effect; in the case of human capital, however, most of the effect can be attributed to increasing differences in returns between small and large firms. |
| Keywords: | Total Factor Productivity, skilled labor, innovation, firm size, Oaxaca decomposition |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:ira:wpaper:200705&r=ent |