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Innovation, reallocation and growth

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  • Daron Acemoglu
  • Ufuk Akcigit
  • Nicholas Bloom
  • William R. 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 5% of GDP reduces welfare by about 1.5% because it deters entry of new high-type firms. On the contrary, substantial improvements (of the order of 5% 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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File URL: http://eprints.lse.ac.uk/51556/
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Bibliographic Info

Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 51556.

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Length: 50 pages
Date of creation: 2013
Date of revision:
Handle: RePEc:ehl:lserod:51556

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Citations

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. 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.
  2. Michael D. Koenig & Xiaodong Liu & Yves Zenou, 2014. "R&D Networks: Theory, Empirics and Policy Implications," Discussion Papers, Stanford Institute for Economic Policy Research 13-027, Stanford Institute for Economic Policy Research.
  3. Ufuk Akcigit & William R. Kerr, 2010. "Growth Through Heterogeneous Innovations," NBER Working Papers 16443, National Bureau of Economic Research, Inc.
  4. William R. Kerr & Ramana Nanda & Matthew Rhodes-Kropf, 2014. "Entrepreneurship as Experimentation," NBER Working Papers 20358, National Bureau of Economic Research, Inc.
  5. Ufuk Akcigit & Murat Alp Celik & Jeremy Greenwood, 2013. "Buy, Keep or Sell: Economic Growth and the Market for Ideas," NBER Working Papers 19763, National Bureau of Economic Research, Inc.
  6. 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.
  7. 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.
  8. 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.

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