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Innovation, Reallocation And Growth

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  • Daron Acemoglu
  • Ufuk Akcigit
  • Nicholas Bloom
  • William Kerr

Abstract

We build a model of firm-level innovation, productivity growth and reallocation featuring endogenous entry and exit. A key feature is the selection between high- and low-type firms, which differ in terms of their innovative capacity. We estimate the parameters of the model using detailed US Census micro data on firm-level output, R&D and patenting. The model provides a good fit to the dynamics of firm entry and exit, output and R&D, and its implied elasticities are in the ballpark of a range of micro estimates. We find industrial policy subsidizing either the R&D or the continued operation of incumbents reduces growth and welfare. For example, a subsidy to incumbent R&D equivalent to 53 of GDP reduces welfare by about 1.53 because it deters entry of new high-type firms. On the contrary, substantial improvements (of the order of 53 improvement in welfare) are possible if the continued operation of incumbents is taxed while at the same time R&D by incumbents and new entrants is subsidized. This is because of a strong selection effect: R&D resources (skilled labor) are inefficiently used by low-type incumbent firms. Subsidies to incumbents encourage the survival and expansion of these firms at the expense of potential high-type entrants. We show that optimal policy encourages the exit of low-type firms and supports R&D by high-type incumbents and entry.

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Bibliographic Info

Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 13-23.

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Length: 48 pages
Date of creation: Apr 2013
Date of revision:
Handle: RePEc:cen:wpaper:13-23

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Keywords: entry; growth; industrial policy; innovation; R&D; reallocation; selection.;

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References

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Innovation, réallocation et croissance
    by ? in D'un champ l'autre on 2013-11-29 22:20:00
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Cited by:
  1. Akcigit, Ufuk & Kerr, William R., 2013. "Growth through heterogeneous innovations," Research Discussion Papers, Bank of Finland 28/2013, Bank of Finland.
  2. Leonid Kogan & Dimitris Papanikolaou & Amit Seru & Noah Stoffman, 2012. "Technological Innovation, Resource Allocation, and Growth," NBER Working Papers 17769, National Bureau of Economic Research, Inc.
  3. Lopez-Garcia, Paloma & di Mauro, Filippo & Benatti, Nicola & Angeloni, Chiara & Altomonte, Carlo & Bugamelli, Matteo & D’Aurizio, Leandro & Navaretti, Giorgio Barba & Forlani, Emanuele & Rossetti, S, 2014. "Micro-based evidence of EU competitiveness: the CompNet database," Working Paper Series, European Central Bank 1634, European Central Bank.
  4. Ufuk Akcigit & Murat Alp Celik & Jeremy Greenwood, 2013. "Buy, Keep or Sell: Economic Growth and the Market for Ideas," Economie d'Avant Garde Research Reports, Economie d'Avant Garde 21, Economie d'Avant Garde.
  5. William R. Kerr & Ramana Nanda & Matthew Rhodes-Kropf, 2014. "Entrepreneurship as Experimentation," NBER Working Papers 20358, National Bureau of Economic Research, Inc.
  6. Michael D. König & Xiaodong Liu & Yves Zenou, 2014. "R&D networks: theory, empirics and policy implications," ECON - Working Papers, Department of Economics - University of Zurich 142, Department of Economics - University of Zurich.
  7. Can Tian, 2012. "Riskiness Choice and Endogenous Productivity Dispersion over the Business Cycle," PIER Working Paper Archive 12-025, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  8. Philippe Aghion & Ufuk Akcigit & Peter Brown, 2013. "What Do We Learn From Schumpeterian Growth Theory?," PIER Working Paper Archive 13-026, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.

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