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Does Market Selection Reward Innovators? Evidence from the Pharmaceutical Industry

Targets to increase R&D intensity to 3% in the EU is a core part of the EC's Lisbon Agenda (2005) which aims to achieve innovation led growth across Europe. Fast growing innovative firms are essential drivers of productivity and economic growth. Yet entrepreneurial small innovative firms do not seem to grow fast enough to drive this innovation led growth (NESTA, 2008).

Our study investigates the relationship between innovation and firm growth in an R&D intensive industry, the pharmaceutical industry, to better understand the firm level factors that determine whether innovation efforts pay off in terms of higher growth. If innovative firms do not always grow more, which characteristics allow firms to grow most from their innovative efforts? Can this help us understand the 'productivity paradox' in this industry in which exponential growth in R&D and patenting has not translated into the discovery of many new drugs?