Growth: Scale or market-size effects?

Abstract

Is the supply of researchers or the demand for technologies more important for innovation? The supply of research labor captures a scale e¤ect, whereas the demand from production labor for technologies captures a market-size e¤ect. We …nd that both the scale e¤ect and the market-size e¤ect are important for innovation and their relative importance depends on the relative intensity of lab-equipment R&D and knowledgedriven R&D in the innovation process.