INTRODUCTION

Considerable economic research has been devoted to establishing whether small and large firms differ with regard to the rate of innovation or their R&D activity. On the one hand, this research was seen to have implications for aggressive American antitrust policies that focused on large firms that performed what was perceived to be a disproportionate amount of scientific research (Scherer, 1992). But more recently, the literature has focused more on the need to develop special support for R&D in small firms (Rothwell and Zegveld, 1982; Acs and Audretsch, 1990).

Since the share of total employment in Canada accounted for by small firms has been increasing (Baldwin and Picot, 1995), attention in Canada has been focused on the need for policies to facilitate more innovation in this sector. The growth of the importance of small firms has led to a reexamination of the adequacy of science and technology policies, in general, and research and development R&D subsidies, in particular, that are available to this group.

If an informed decision is to be made on whether aid for small firms' R&D efforts requires policies that are distinct from those designed for large firms, it is essential to assess the differences in the R&D capacity and innovation capabilities of small and large firms. For this reason, this chapter examines whether variations exist in the R&D profile and in the tendency of small and large firms to innovate.