Does Innovation Lead to Firm Growth? : Explorative versus Exploitative Innovations

In this paper, we examine the relationship between innovation and firm growth. Weimplement a classification of innovations based on whether they are explorative orexploitative, taking advantage of a unique Swedish dataset for the period 1997 to 2012.The data allow us to construct each firm’s innovation history. Panel regression estimations,together with an instrumental variable method, confirm a significant and positive effect ofboth exploitative and explorative innovation on firms’ employment growth. More radicalexplorative innovations are shown to have a more persistent growth effect, whereasexploitative innovation increases labour demand in the short run. We also provideempirical findings regarding the effect of innovations distributed on size classes anddifferent ownership structures.QS 2016