Firm size, market concentration and R&D: an empirical analysis of the Italian manufacturing firms

The relation between firm size, market concentration and innovation is a topic that has been much studied in the literature, however theoretical and empirical studies are still inconclusive. This paper proposes to study whether firm size and market concentration have different impact on the probability to carry out R&D efforts and to R&D intensity, taking into account learning effect and spillover. To test our hypotheses we use a panel of Italian manufacturing firms over the period 2004-2006 and find a strong relationship between firm size and innovation activity. The relationship between market concentration and innovation activity is also found with the decision to invest. However our results show that the relation between firm size, market concentration and innovation is strongly influenced by the Pavitt sectors. In fact, firms belonging in the suppler dominated and scale intensive sectors have different results from those in the specialized supplier and science based sectors.