Assessing the nonlinear nature of the effects of R&D intensity on growth of SMEs: a dynamic panel data approach

Based on a sample of Portuguese SMEs for the period 1999-2006 and using two step estimation, namely probit regressions and dynamic estimators, this study makes two important contributions to the literature: (i) identification of a quadratic relationship between R&D intensity and SME growth that takes the form of a U, and so R&D intensity is a stimulating factor of SME growth for high levels of R&D intensity; being a restrictive factor of SME growth for low levels of R&D intensity; and (ii) the growth of SMEs seems to be dependent on the nonlinear effects associated with distinct levels of R&D intensity. The nonlinear effects identified suggest that Portuguese SMEs with high levels of R&D intensity more easily find an efficiency scale and are more dependent on internal financing and short-term debt as sources for funding growth, compared to the case of Portuguese SMEs with lower levels of R&D intensity.