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Texto para discussão 05/2007

Knowledge production and firm growth in Brazil
Luiz Alberto De Negri*, Luiz Esteves**, Fernando Freitas***

The aim of this study is to gauge the impact of the production of knowledge on the accumulation of fixed capital in Brazil. The hypothesis is that investment in R&D causes investment in fixed capital in Brazilian industrial firms. The empirical estimates rest on an IPEA database for information on firms and the workers linked to these firms during the period 1996-2003 and on the National Innovation Survey (PINTEC) for information on technological development. In the article, various estimates are made using three empirical procedures. First, the firms that grew most and invested most are described. Second, econometric models relating R&D expenditures, technological innovation and the accumulation of fixed capital are estimated. A model having five equations and a structure similar to that of CDM models is estimated. The system employs instrumental variables to
correct for endogeneity and solves the selection problem by including a firm-survival equation. Third, the causal relations between R&D and investment in fixed capital are sought through contrafactual analysis and a difference model. The results support the initial hypothesis, indicating that investments in R&D lead to an average 17% increase in investments in fixed capital among Brazilian firms.

Keywords: firm growth; knowledge production; R&D; innovation; simultaneous equation models.

JEL: C31, C24, L60, O31, O32

* Director of Instituto de Pesquisa Econômica Aplicada (IPEA).
** Professor at Universidade Federal do Paraná (UFPR) and consultant at Instituto de Pesquisa Econômica Aplicada (IPEA).
*** Consultant at Instituto de Pesquisa Econômica Aplicada (IPEA).

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