College of Behavioral & Social Sciences
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The collections in this community comprise faculty research works, as well as graduate theses and dissertations..
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Item Essays on Corporate Venture Capital, Firm Dynamics, and Aggregate Growth(2022) Liu, Yi; Haltiwanger, John; Stevens, Luminita; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)This dissertation studies the impact of corporate venture capital (CVC) on firm dynamics, innovation, and aggregate economic growth. In Chapter 1, I examine whether and how CVC enables funded young firms to rapidly grow, relative to the effect of traditional venture capital (TVC). I formalize the hypothesis that CVC can improve young firm outcomes through demand and/or technology spillovers using a simple model of VC financing and young firm innovation. To test the hypothesis, I assemble a micro-level dataset that links each U.S. VC-funded firm to its funder(s) and subsequent patenting and exit outcomes. To address endogenous investment relationships and to separately identify the causal effects of CVC and TVC in the presence of CVC-TVC syndication, I employ a shift-share research design that predicts both forms of investment at the industry level using the interaction of the initial market shares of different funders and several instruments for funder-specific supply shifts. My estimates reveal that the effect of CVC is as large as the effect of TVC. Moreover, the effect of CVC is found to be stronger when the funded firm is upstream with respect to the CVC funder in the Input-Output matrix and downstream in the patent citation matrix, lending support to the hypothesized demand and technology channels of CVC. Chapter 2 investigates the effect of CVC on one form of strategic payoffs to funding firms: corporate innovation. I construct and analyze a micro-level dataset that links CVC investments to U.S. publicly traded firms and their patenting activities. I track the funding firms before and after starting CVC, in comparison to a group of control firms defined by firm size, age, industry, and prior growth. I find that CVC leads to an increase in patenting rate at the funding firms. Importantly, much of the effect is driven by smaller-sized funding firms, informing the potential relationship between CVC and internal innovation across the firm size distribution. Chapter 3 explores the implications of CVC for aggregate economic outcomes. I develop a growth model featuring CVC and endogenous firm innovation that is consistent with a set of facts on U.S. CVC, including (i) the selection of large and highly innovative firms into making CVC investment and (ii) positive treatment effects associated with CVC on both the funded and funding firms, measured by innovation outcomes. In equilibrium, firms engaged in CVC benefit from positive treatment that makes them innovate more, whereas other firms reduce innovation as they face more intense competition. These forces in turn affect firm selection and the incentives for new entrepreneurship. Quantitative analysis suggests that a higher level of CVC activity leads to an overall increase in aggregate growth, a fall in entry, and a fattening of the firm size distribution at both tails.Item Essays on Firm Growth, Firm Innovation, and International Trade(2020) Jo, Karam; Haltiwanger, John C; Saffie, Felipe; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)This dissertation studies the effect of competition on firms' decisions for heterogeneous innovation, and its implication for the recent decline in business dynamism in the U.S. in the context of increasing competitive pressure by foreign firms due to globalization. In Chapter 1, I theoretically investigate the effect of competition on firm innovation by developing a discrete-time endogenous growth model where multi-product firms do two types of innovation subject to friction in technology spillovers. Firms improve their existing products through internal innovation while getting into product markets outside of firms' scope through external innovation. Novel friction I consider is that it takes time to learn others' technology during external innovation, which I denote as an imperfect technology spillover. In contrast to existing models, this friction allows incumbent firms to defend themselves from competitors by building technological barriers through internal innovation. I calibrate the model and run counterfactual exercises of increasing competition, where competition is from either outside of the economy, such as foreign exporters, or domestic firm entry. I find that regardless of the source of competition, domestic incumbent firms i) increase their internal innovation for products they have a technological advantage while decreasing it for products with no technological advantage, and ii) decrease their external innovation. This shift of innovation composition lowers firms' investment in overall innovation in the U.S., where firms are creative in the sense that they do a lot of external innovation. However, increasing competition increases firms' investment in overall innovation in an economy where firms do less external innovation. In an economy with high external innovation costs, firms put very little resource for external innovation even before increasing competition, which implies that there is little room for adjustment. Thus, although external innovation is decreased after an increase in competition, this small reduction is more than offset by increased internal innovation for defensive reasons. These findings highlight the importance of examining the composition of innovation as opposed to overall innovation, and sheds light on the reason for the differential effect of the same competition shock, such as Chinese import competition, on firms' overall innovation across different countries identified by recent studies. In Chapter 2, I empirically test the model predictions derived in Chapter 1, and by building on these findings, I argue that the decline in high-growth firm activity and startup rates in the U.S. is a result of multi-product firms' optimal innovation decisions in response to increasing competitive pressure by foreign firms due to globalization. The three predictions I derive using a simplified three-period version of my model are i) increasing competition makes innovative firms increase their investment in internal innovation for defensive reasons, ii) if innovation intensity is high in the economy, firms do less external innovation, and iii) increasing expected profit makes firms invest more in internal innovation. By using firm-level data from the U.S. Census Bureau integrated with firm-level patent data from the USPTO, I find regression results consistent with the model's predictions. Then, I extend the baseline closed economy model developed in Chapter 1 and build a two-country endogenous growth model to show that increasing competitive pressure by foreign firms contributes to the recent decline in high-growth firm activities and startup rates in the U.S. by inducing innovation-intensive and thus fast-growing firms to invest more in internal innovation for defensive reasons. And because innovative incumbents in each product market are now good at protecting their markets with heightened technological barriers, all types of firms find it difficult to enter others' markets through external innovation. Thus, the startup rate falls, and all firms reduce their investment in external innovation. This shift in innovation cuts the employment growth of innovation-intensive firms, as external innovation makes firms grow faster than internal innovation by requiring firms to hire a new set of workers to produce new products.Item ESSAYS ON CAPITAL FLOWS IN DEVELOPING COUNTRIES(2018) Matsumoto, Hidehiko; Saffie, Felipe; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)In the first chapter, I develop a quantitative small-open-economy model to assess the optimal pace of foreign reserve accumulation by developing countries. The model features endogenous growth with foreign direct investment (FDI) entry and sudden stops of capital inflows to incorporate benefits of reserve accumulation. Reserve accumulation depreciates the real exchange rate and attracts FDI, which endogenously promotes productivity growth. When a sudden stop happens, the government uses accumulated reserve to prevent a severe economic downturn. The calibrated model shows that two factors are the key determinants of the optimal pace of reserve accumulation: the elasticity of the foreign borrowing spread with respect to debt, and the entry cost for FDI. The model suggests that these two factors can explain a substantial amount of the cross-country variation in the observed pace of reserve accumulation. The second chapter is a joint work with Felipe Saffie. In this chapter, we develop a small-open-economy model with endogenous firm and trade dynamics. Aggregate productivity of the economy increases through new firm entry and incumbent firms' innovation. Firms invest in two types of innovation: innovation to acquire new product lines, and innovation to start exporting their products. These innovation activities determine the extensive margins of imports and exports. The economy is also subject to sudden stops of capital inflows. The model can capture some of the empirical regularities of firm and trade dynamics during sudden stops: firms' innovation drops sharply, which causes a persistent decline in productivity and output; imports of goods decline substantially, while exports are almost unaffected; profits for exports increase due to a large real depreciation and lower production cost; the extensive margin of exports gradually expands after sudden stops. The model provides a tractable framework to study optimal capital policies in the context of endogenous firm and trade dynamics.