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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
Date of revision:
Handle: RePEc:lec:leecon:09/25
Contact details of provider: Postal: Department of Economics University of Leicester, University Road. Leicester. LE1 7RH. UK
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  1. Rasmus Lentz & Dale T. Mortensen, 2005. "An Empirical Model of Growth Through Product Innovation," Boston University - Department of Economics - Working Papers Series WP2005-004, Boston University - Department of Economics.
  2. 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.
  3. Lu�s M B Cabral & Jos� 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.
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  6. Aghion, Philippe, et al, 2001. "Competition, Imitation and Growth with Step-by-Step Innovation," Review of Economic Studies, Wiley Blackwell, vol. 68(3), pages 467-92, July.
  7. Klette, Tor Jakob & Kortum, Samuel S, 2002. "Innovating Firms and Aggregate Innovation," CEPR Discussion Papers 3248, C.E.P.R. Discussion Papers.
  8. Grossman, G.M. & Helpman, E., 1989. "Quality Ledders In The Theory Of Growth," Papers 148, Princeton, Woodrow Wilson School - Public and International Affairs.
  9. Esteban Rossi-Hansberg & Mark L.J. Wright, 2005. "Firm Size Dynamics in the Aggregate Economy," NBER Working Papers 11261, National Bureau of Economic Research, Inc.
  10. Evans, David S., 1986. "Tests of Alternative Theories of Firm Growth," Working Papers 86-36, C.V. Starr Center for Applied Economics, New York University.
  11. 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.
  12. Robert J. Barro & Xavier Sala-i-Martin, 1994. "Quality Improvements in Models of Growth," NBER Working Papers 4610, National Bureau of Economic Research, Inc.
  13. O'Donoghue, Ted & Zweimüller, Josef, 1998. "Patents in a Model of Endogenous Growth," Economics Series 56, Institute for Advanced Studies.
  14. Griliches, Zvi, 1990. "Patent Statistics as Economic Indicators: A Survey," Journal of Economic Literature, American Economic Association, vol. 28(4), pages 1661-1707, December.
  15. Cozzi, Guido, 2007. "Self-fulfilling prophecies in the quality ladders economy," Journal of Development Economics, Elsevier, vol. 84(1), pages 445-464, September.
  16. Hall, Bronwyn H, 1987. "The Relationship between Firm Size and Firm Growth in the U.S. Manufacturing Sector," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 583-606, June.
  17. 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.
  18. Vincenzo Denicol� & Piercarlo Zanchettin, 2010. "Competition, Market Selection and Growth," Economic Journal, Royal Economic Society, vol. 120(545), pages 761-785, 06.
  19. Grossman, Gene M & Helpman, Elhanan, 1991. "Quality Ladders and Product Cycles," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 557-86, May.
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  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. Stein, Jeremy C, 1997. "Waves of Creative Destruction: Firm-Specific Learning-by-Doing and the Dynamics of Innovation," Review of Economic Studies, Wiley Blackwell, vol. 64(2), pages 265-88, April.
  25. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
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