We explore how firms grow by adding products. We leverage detailed data from Japan’s cotton spinning industry at the turn of the last century to do so. This setting allows us to fully characterize the type of differentiation (vertical or horizontal) of new product introductions as well as whether the product is within or outside of the firm’s prior technological capabilities. We find that trying to introduce innovative products beyond the firm’s previous technologically feasible set, even if such trials fail, is a key to firm growth. Indeed, it mostly facilitates growth through the firm’s later success in horizontal product diversification. In long-term outcomes, the right tail of the firm size distribution becomes dominated by firms that first moved into technologically challenging products and then later applied their newly acquired technical competence to horizontal expansion of their product portfolios. Two mechanisms through which this knowledge transfer occurs are greater production system flexibility and higher product appeal to downstream buyers. (JEL D22, L11,L67, N65, N85, O31, O33)

中文翻译：

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产品创新、产品多样化和企业增长：来自日本早期工业化的证据

我们探索公司如何通过添加产品来成长。我们利用上世纪之交日本棉纺行业的详细数据来做到这一点。这种设置使我们能够全面描述新产品推出的差异化类型（垂直或水平），以及产品是否在公司先前的技术能力之内或之外。我们发现，尝试推出超出公司先前技术可行范围的创新产品，即使此类试验失败，也是公司成长的关键。事实上，它主要通过公司后来在横向产品多样化方面的成功来促进增长。在长期结果中，公司规模分布的右尾由那些首先进入具有技术挑战性的产品，然后将其新获得的技术能力应用于其产品组合的横向扩展的公司所主导。发生这种知识转移的两种机制是更大的生产系统灵活性和对下游买家的更高产品吸引力。（JEL D22、L11、L67、N65、N85、O31、O33）