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FISHER and TEMIN (1973) have argued recently that many empirical studies1 relating
to the Schumpeterian hypothesis are inappropriate for testing that hypothesis. They
observe that Schumpeter can be interpreted as hypothesizing that the elasticity of
the value of research and development (R and D) output with respect to firm size is
greater than unity. On the other hand, the empirical studies have been concerned with
investigating the elasticity of R and D inputs with respect to firm size. Fisher and
Temin demonstrate that a finding that the R and D input elasticity exceeds unity does
not imply that the R and D output elasticity exceeds unity also. Given that public
policy formulation should be based on tests of the Schumpeter hypothesis rather than
on tests of the R and D input elasticity, their point is well taken. Of course, in
defense of the empirical studies, it can be argued that data limitations have restricted
testing to the R and D input elasticity, and that most of the researchers have been
aware that they were not testing the Schumpeter hypothesis.............
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