Firm size and technical change in a dynamic context

This article investigates relationship between firm size and technical change. The relationship between firm size and technical change has long been a pre-occupation in the literature, preceding the flurry of macroeconomic studies which followed the discovery of the residual factor by Solow, Dennison and others. Although this concern goes back at least to the writings of Marx, it was Schumpeter who first emphasized the relationship between firm size and technical change. For some years the assertion of Schumpeter's was widely accepted. But then a number of detailed empirical studies were undertaken resting on 1950s data. These began to suggest that beyond a certain size inventive activity rose less than proportionately with bigness. By contrast, Rothwell and Zegveld assembled a variety of country studies, some of which suggest that small and medium sized firms are relatively invention-and innovation-intensive in some sectors and in some countries. The purpose of this paper is to argue, by illustration with a single sector, computer-aided design (CAD), that the above-mentioned studies reach their varying conclusions in a largely static framework. Thus, whilst there is always a tendency towards concentration in capitalism, the relationship between firm size and technical change is a dynamic one, ensuring that static generalisations at any single point of time are not very helpful. The article is divided into Sections by Section III describes the market structure in the CAD sector and analyse how this has changed over the past decade. Section IV analyses the nature of the barriers to entry in this sector and illustrate how these are typical of other emerging software-intensive microelectronic-based sectors. Finally, section V is a return discussion on the relationship between firm size and inventive activity