Process Innovations and Growth

R&D activity exerts its effects in a variety of ways. It may increase the number of patents of different varieties of goods or the quality of existing goods. However, we suggest it may also result in process innovation, given that patents of new goods may be associated with more productive production processes. This, in turn, explains heterogeneity of firms in productivity levels. As a consequence, the growing economy is described by a succession of moving equilibria in which the scale effect can be offset, provided that some conditions are met