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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. Barro, Robert J. & Sala-i-Martin, Xavier, 1994. "Quality Improvements in Models of Growth," CEPR Discussion Papers 1076, C.E.P.R. Discussion Papers.
  2. Zvi Griliches, 1998. "Patent Statistics as Economic Indicators: A Survey," NBER Chapters, in: R&D and Productivity: The Econometric Evidence, pages 287-343 National Bureau of Economic Research, Inc.
  3. Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," UWO Department of Economics Working Papers 8904, University of Western Ontario, Department of Economics.
  4. Jeremy C. Stein, 1997. "Waves of Creative Destruction: Firm-Specific Learning-by-Doing and the Dynamics of Innovation," Review of Economic Studies, Oxford University Press, vol. 64(2), pages 265-288.
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  6. Grossman, G.M. & Helpman, E., 1989. "Quality Ladders And Product Cycles," Papers 39-89, Tel Aviv.
  7. O'Donoghue, Edward & Zweimüller, Josef, 1998. "Patents in a Model of Endogenous Growth," CEPR Discussion Papers 1951, C.E.P.R. Discussion Papers.
  8. Lentz, Rasmus & Mortensen, Dale T., 2005. "An Empirical Model of Growth Through Product Innovation," IZA Discussion Papers 1685, Institute for the Study of Labor (IZA).
  9. Howitt, Peter & Griffith, Rachel & Aghion, Philippe & Blundell, Richard & Bloom, Nick, 2005. "Competition and Innovation: An Inverted-U Relationship," Scholarly Articles 4481507, Harvard University Department of Economics.
  10. Luís M B Cabral & José Mata, 2003. "On the Evolution of the Firm Size Distribution: Facts and Theory," American Economic Review, American Economic Association, vol. 93(4), pages 1075-1090, September.
  11. Segerstrom, Paul S., 1999. "Intel Economics," Working Paper Series 524, Research Institute of Industrial Economics.
    • Paul S. Segerstrom, 2007. "Intel Economics," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(1), pages 247-280, 02.
  12. Segerstrom, Paul S & Anant, T C A & Dinopoulos, Elias, 1990. "A Schumpeterian Model of the Product Life Cycle," American Economic Review, American Economic Association, vol. 80(5), pages 1077-91, December.
  13. Mark L.J. Wright & Esteban Rossi-Hansberg, 2004. "Firm Size Dynamics in the Aggregate Economy," 2004 Meeting Papers 878, Society for Economic Dynamics.
  14. Harris, Christopher & Howitt, Peter & Vickers, John & Aghion, Philippe, 2001. "Competition, Imitation and Growth with Step-by-Step Innovation," Scholarly Articles 12375013, Harvard University Department of Economics.
  15. Jakob Klette & Samuel Kortum, 2002. "Innovating firms and aggregate innovation," Staff Report 300, Federal Reserve Bank of Minneapolis.
  16. A. Minniti & C.P. Parello & P.S. Segerstrom, 2008. "A Schumpeterian Growth Model with Heterogenous Firms," Working Papers 645, Dipartimento Scienze Economiche, Universita' di Bologna.
  17. Evans, David S, 1987. "Tests of Alternative Theories of Firm Growth," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 657-74, August.
  18. Grossman, G.M. & Helpman, E., 1989. "Quality Ledders In The Theory Of Growth," Papers 148, Princeton, Woodrow Wilson School - Public and International Affairs.
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  20. Cozzi, Guido, 2007. "Self-fulfilling prophecies in the quality ladders economy," Journal of Development Economics, Elsevier, vol. 84(1), pages 445-464, September.
  21. repec:fth:harver:1473 is not listed on IDEAS
  22. Rasmus Lentz & Dale T. Mortensen, 2005. "Productivity Growth And Worker Reallocation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(3), pages 731-749, 08.
  23. Angus Chu, 2009. "Effects of blocking patents on R&D: a quantitative DGE analysis," Journal of Economic Growth, Springer, vol. 14(1), pages 55-78, March.
  24. Vincenzo Denicolò & Piercarlo Zanchettin, 2010. "Competition, Market Selection and Growth," Economic Journal, Royal Economic Society, vol. 120(545), pages 761-785, 06.
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