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Innovation, reallocation and growth

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  • Acemoglu, Daron

    (MIT, CEPR and NBER)

  • Akcigit, Ufuk

    (University of Pennsylvania and NBER)

  • Bloom , Nicholas

    (Stanford University, NBER and CEPR)

  • Kerr , William

    ()
    (Harvard University, Bank of Finland, and NBER)

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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Bibliographic Info

Paper provided by Bank of Finland in its series Research Discussion Papers with number 22/2013.

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Length: 47 pages
Date of creation: 25 Sep 2013
Date of revision:
Handle: RePEc:hhs:bofrdp:2013_022

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Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.suomenpankki.fi/en/
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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. 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 21, Economie d'Avant Garde.
  2. König, Michael & Liu, Xiaodong & Zenou, Yves, 2014. "R&D Networks: Theory, Empirics and Policy Implications," CEPR Discussion Papers 9872, C.E.P.R. Discussion Papers.
  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 1634, European Central Bank.
  4. Akcigit, Ufuk & Kerr, William R., 2013. "Growth through heterogeneous innovations," Research Discussion Papers 28/2013, Bank of Finland.
  5. 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.
  6. 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.
  7. 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.

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