Small Firms and R&D Spillovers: Evidence from Italy

The recent emergence in the industrial organization literature of a wave of studies identifying small firms as being at least as innovative as their larger counterparts poses something of a paradox. Where do small firms get their knowledge generating inputs? The purpose of this paper is to link innovative inputs to innovative outputs. This allows for an identification of the extent to which spillovers exist between major sources generating new knowledge, such as the R&D laboratories of private and public firms, as well as universities, to the innovative activity of large and small enterprises. Based on 15 Italian regions over nine years, the empirical evidence suggests that, while firm R&D expenditures contribute to the generation of innovative output for all firms and specifically for small firms, the spillovers from universities are apparently more important for small-firm innovation than for their larger counterparts.