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Leadership Cycles

  • Piercarlo Zanchettin

    ()

  • Vincenzo Denicolò

We study a quality-ladder model of endogenous growth that produces stochastic leadership cycles. Over a cycle, industry leaders can innovate several successive times in the same industry, gradually increasing the magnitude of their technological lead before being replaced by a new en-trant. Initially, new leaders are eager to enlarge their lead and do much of the research, but if they innovate repeatedly, their propensity to invest in R&D decreases. Eventually they stop doing research ltogether, and as they are overtaken a new cycle starts. The model generates a skewed firm size distribution and a deviation from Gibrat's law that accord with the empirical evidence. We also consider various policy measures, showing that in some cases policy should favour R&D by incumbents, not outsiders, and that stronger patent protection may reduce innovation and growth.

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Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 09/25.

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Date of creation: Nov 2009
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Handle: RePEc:lec:leecon:09/25
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  1. Robert J. Barro & Xavier Sala-i-Martin, 1994. "Quality Improvements in Models of Growth," NBER Working Papers 4610, National Bureau of Economic Research, Inc.
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  18. Cozzi, Guido, 2007. "Self-fulfilling prophecies in the quality ladders economy," Journal of Development Economics, Elsevier, vol. 84(1), pages 445-464, September.
  19. Minniti, A. & Parello, C. & Segerstrom, P. S., 2008. "A Schumpeterian Growth Model with Heterogenous Firms," MPRA Paper 13674, University Library of Munich, Germany.
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