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Published online by Cambridge University Press:  06 February 2013

Pedro Mazeda Gil*
University of Porto and CEF.UP
Paulo Brito
Technical University of Lisbon and UECE
Oscar Afonso
University of Porto and CEF.UP
Address correspondence to: Pedro Mazeda Gil, Rua Dr Roberto Frias, 4200-464, Porto, Portugal; e-mail:


A negative or nonsignificant empirical correlation between aggregate R&D intensity and the economic growth rate is a well-known fact in the empirical growth literature, but scarcely addressed in the theoretical growth literature. This paper develops an endogenous-growth~model that explores the interrelation~between horizontal and vertical R&D under a lab-equipment specification that is consistent with that stylized fact. A key feature is that the growth rate is fully endogenous both on the intensive and on the extensive margin. Strong composition effects between horizontal and vertical R&D, along both transition and the balanced-growth path, then emerge as the main mechanism producing those results. This setting also allows us to obtain a relationship between economic growth and firm dynamics that is consistent with the empirical facts.

Copyright © Cambridge University Press 2013 

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