IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/8843.html
   My bibliography  Save this paper

Innovation vs imitation and the evolution of productivity distributions

Author

Listed:
  • König, Michael
  • Lorenz, Jan
  • Zilibotti, Fabrizio

Abstract

We develop a tractable dynamic model of productivity growth and technology spillovers that is consistent with the emergence of real world empirical productivity distributions. Firms can improve productivity by engaging in in-house R&D, or alternatively, by trying to imitate other firms’ technologies subject to limits to their absorptive capacities. The outcome of both strategies is stochastic. The choice between in-house R&D and imitation is endogenous, and based on firms’ profit maximization motive. Firms closer to the technological frontier have less imitation opportunities, and tend to choose more often in-house R&D, consistent with the empirical evidence. The equilibrium choice leads to balanced growth featuring persistent productivity differences even when starting from ex-ante identical firms. The long run productivity distribution can be described as a traveling wave with tails following Zipf’s law as it can be observed in the empirical data. Idiosyncratic shocks to firms’ productivities of R&D reduce inequality, but also lead to lower aggregate productivity and industry performance.

Suggested Citation

  • König, Michael & Lorenz, Jan & Zilibotti, Fabrizio, 2012. "Innovation vs imitation and the evolution of productivity distributions," CEPR Discussion Papers 8843, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:8843
    as

    Download full text from publisher

    File URL: http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=8843
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Zilibotti, Fabrizio & König, Michael & Lorenz, Jan, 2016. "Innovation vs. imitation and the evolution of productivity distributions," Theoretical Economics, Econometric Society, vol. 11(3), September.
    2. Cohen, Wesley M & Levin, Richard C & Mowery, David C, 1987. "Firm Size and R&D Intensity: A Re-examination," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 543-565, June.
    3. Robert E. Hall & Charles I. Jones, 1999. "Why do Some Countries Produce So Much More Output Per Worker than Others?," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 83-116.
    4. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: an Inverted-U Relationship," The Quarterly Journal of Economics, Oxford University Press, vol. 120(2), pages 701-728.
    5. de Wit, Gerrit, 2005. "Firm size distributions: An overview of steady-state distributions resulting from firm dynamics models," International Journal of Industrial Organization, Elsevier, vol. 23(5-6), pages 423-450, June.
    6. Geroski, P. A., 2000. "Models of technology diffusion," Research Policy, Elsevier, vol. 29(4-5), pages 603-625, April.
    7. Eaton, Jonathan & Kortum, Samuel, 2001. "Trade in capital goods," European Economic Review, Elsevier, vol. 45(7), pages 1195-1235.
    8. Sandholm, William H., 2003. "Evolution and equilibrium under inexact information," Games and Economic Behavior, Elsevier, vol. 44(2), pages 343-378, August.
    9. Andrew Atkeson & Ariel Tomás Burstein, 2010. "Innovation, Firm Dynamics, and International Trade," Journal of Political Economy, University of Chicago Press, vol. 118(3), pages 433-484, June.
    10. Robert E. Lucas Jr. & Benjamin Moll, 2014. "Knowledge Growth and the Allocation of Time," Journal of Political Economy, University of Chicago Press, vol. 122(1), pages 1-51.
    11. Bruce Kogut & Udo Zander, 1992. "Knowledge of the Firm, Combinative Capabilities, and the Replication of Technology," Organization Science, INFORMS, vol. 3(3), pages 383-397, August.
    12. Bloom, Nicholas & Van Reenen, John, 2011. "Human Resource Management and Productivity," Handbook of Labor Economics, Elsevier.
    13. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    14. Jess Benhabib & Jesse Perla & Christopher Tonetti, 2014. "Catch-up and fall-back through innovation and imitation," Journal of Economic Growth, Springer, vol. 19(1), pages 1-35, March.
    15. Quah, Danny T, 1996. "Twin Peaks: Growth and Convergence in Models of Distribution Dynamics," Economic Journal, Royal Economic Society, vol. 106(437), pages 1045-1055, July.
    16. Dongfeng Fu & Fabio Pammolli & S. V. Buldyrev & Massimo Riccaboni & Kaushik Matia & Kazuko Yamasaki & H. E. Stanley, 2005. "The Growth of Business Firms: Theoretical Framework and Empirical Evidence," Papers physics/0512005, arXiv.org.
    17. Comin, Diego & Mestieri, Martí, 2014. "Technology Diffusion: Measurement, Causes, and Consequences," Handbook of Economic Growth,in: Handbook of Economic Growth, edition 1, volume 2, chapter 2, pages 565-622 Elsevier.
    18. Erzo G. J. Luttmer, 2007. "Selection, Growth, and the Size Distribution of Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 122(3), pages 1103-1144.
    19. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
    20. Quah, Danny, 1996. "Twin peaks : growth and convergence in models of distribution dynamics," LSE Research Online Documents on Economics 2278, London School of Economics and Political Science, LSE Library.
    21. Ghiglino, Christian, 2012. "Random walk to innovation: Why productivity follows a power law," Journal of Economic Theory, Elsevier, vol. 147(2), pages 713-737.
    22. Robert E. Lucas, 2009. "Ideas and Growth," Economica, London School of Economics and Political Science, vol. 76(301), pages 1-19, February.
    23. Nicholas Bloom, 2009. "The Impact of Uncertainty Shocks," Econometrica, Econometric Society, vol. 77(3), pages 623-685, May.
    24. Durlauf, Steven N & Johnson, Paul A, 1995. "Multiple Regimes and Cross-Country Growth Behaviour," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(4), pages 365-384, Oct.-Dec..
    25. Cheng, Leonard K. & Dinopoulos, Elias, 1996. "A multisectoral general equilibrium model of Schumpeterian growth and fluctuations," Journal of Economic Dynamics and Control, Elsevier, vol. 20(5), pages 905-923, May.
    26. Cohen, Wesley M & Levinthal, Daniel A, 1989. "Innovation and Learning: The Two Faces of R&D," Economic Journal, Royal Economic Society, vol. 99(397), pages 569-596, September.
    27. Daron Acemoglu & Fabrizio Zilibotti, 2001. "Productivity Differences," The Quarterly Journal of Economics, Oxford University Press, vol. 116(2), pages 563-606.
    28. Acemoglu, Daron & Cao, Dan, 2015. "Innovation by entrants and incumbents," Journal of Economic Theory, Elsevier, vol. 157(C), pages 255-294.
    29. Barro, Robert J & Sala-i-Martin, Xavier, 1997. "Technological Diffusion, Convergence, and Growth," Journal of Economic Growth, Springer, vol. 2(1), pages 1-26, March.
    30. Acemoglu, Daron & Gancia, Gino & Zilibotti, Fabrizio, 2012. "Competing engines of growth: Innovation and standardization," Journal of Economic Theory, Elsevier, vol. 147(2), pages 570-601.3.
    31. Feyrer James D, 2008. "Convergence by Parts," The B.E. Journal of Macroeconomics, De Gruyter, vol. 8(1), pages 1-35, July.
    32. Fernando E. Alvarez & Francisco J. Buera & Robert E. Lucas, Jr., 2008. "Models of Idea Flows," NBER Working Papers 14135, National Bureau of Economic Research, Inc.
    33. Michel BenaÔm & J–rgen W. Weibull, 2003. "Deterministic Approximation of Stochastic Evolution in Games," Econometrica, Econometric Society, vol. 71(3), pages 873-903, May.
    34. Tor Jakob Klette & Samuel Kortum, 2004. "Innovating Firms and Aggregate Innovation," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 986-1018, October.
    35. Martin L. Weitzman, 1998. "Recombinant Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 113(2), pages 331-360.
    36. Quah, Danny, 1993. " Galton's Fallacy and Tests of the Convergence Hypothesis," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(4), pages 427-443, December.
    37. Mark Doms & Timothy Dunne & Kenneth R. Troske, 1997. "Workers, Wages, and Technology," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 253-290.
    38. Quah, Danny, 1997. "Empirics for Growth and Distribution: Stratification, Polarization, and Convergence Clubs," CEPR Discussion Papers 1586, C.E.P.R. Discussion Papers.
    39. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 317-341.
    40. Rachel Griffith & Stephen Redding & John Van Reenen, 2003. "R&D and Absorptive Capacity: Theory and Empirical Evidence," Scandinavian Journal of Economics, Wiley Blackwell, vol. 105(1), pages 99-118, March.
    41. Jesse Perla & Christopher Tonetti & Jess Benhabib, 2014. "The Growth Dynamics of Innovation, Diffusion, and the Technology Frontier," 2014 Meeting Papers 818, Society for Economic Dynamics.
    42. Kelly, Morgan, 2001. "Linkages, Thresholds, and Development," Journal of Economic Growth, Springer, vol. 6(1), pages 39-53, March.
    43. Cohen, Wesley M & Klepper, Steven, 1996. "A Reprise of Size and R&D," Economic Journal, Royal Economic Society, vol. 106(437), pages 925-951, July.
    44. Peter Howitt, 2000. "Endogenous Growth and Cross-Country Income Differences," American Economic Review, American Economic Association, vol. 90(4), pages 829-846, September.
    45. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    46. Cohen, Wesley M & Klepper, Steven, 1992. "The Anatomy of Industry R&D Intensity Distributions," American Economic Review, American Economic Association, vol. 82(4), pages 773-799, September.
    47. Bastian Westbrock, 2010. "Natural concentration in industrial research collaboration," RAND Journal of Economics, RAND Corporation, vol. 41(2), pages 351-371.
    48. CORCOS, Gregory & DEL GATTO, Massimo & MION, Giordano & OTTAVIANO, Gianmarco I.P., 2007. "Productivity and firm selection: intra- vs international trade," CORE Discussion Papers 2007060, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    49. Quah, Danny T, 1997. "Empirics for Growth and Distribution: Stratification, Polarization, and Convergence Clubs," Journal of Economic Growth, Springer, vol. 2(1), pages 27-59, March.
    50. Fai, Felicia & von Tunzelmann, Nicholas, 2001. "Industry-specific competencies and converging technological systems: evidence from patents," Structural Change and Economic Dynamics, Elsevier, vol. 12(2), pages 141-170, July.
    51. Jan Eeckhout & Boyan Jovanovic, 2002. "Knowledge Spillovers and Inequality," American Economic Review, American Economic Association, vol. 92(5), pages 1290-1307, December.
    52. Danny Quah, 1996. "Twin Peaks: Growth and Convergence in Models of Distribution Dynamics," CEP Discussion Papers dp0280, Centre for Economic Performance, LSE.
    53. Eaton, Jonathan & Kortum, Samuel, 1999. "International Technology Diffusion: Theory and Measurement," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 537-570, August.
    54. Xavier Gabaix, 1999. "Zipf's Law for Cities: An Explanation," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 739-767.
    55. George Ehrhardt & Matteo Marsili & Fernando Vega-Redondo, 2006. "Diffusion and growth in an evolving network," International Journal of Game Theory, Springer;Game Theory Society, vol. 34(3), pages 383-397, October.
    56. Wesley M. Cohen & Richard C. Levin & David C. Mowery, 1987. "Firm Size and R&D Intensity: A Re-Examination," NBER Working Papers 2205, National Bureau of Economic Research, Inc.
    57. Amil Petrin & Brian P. Poi & James Levinsohn, 2004. "Production function estimation in Stata using inputs to control for unobservables," Stata Journal, StataCorp LP, vol. 4(2), pages 113-123, June.
    58. T. Di Matteo & T. Aste & M. Gallegati, 2005. "Innovation flow through social networks: productivity distribution in France and Italy," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 47(3), pages 459-466, October.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    absorptive capacity; growth; innovation; productivity difference; quality ladder; spillovers;

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:8843. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.