R&D Heterogeneity and Countercyclical Productivity Dispersion

Shuowen Chen and Yang Ming

Papers from arXiv.org

Abstract: Why is the U.S. industry-level productivity dispersion countercyclical? Theoretically, we build a duopoly model in which heterogeneous R&D costs determine firms' optimal behaviors and the equilibrium technology gap after a negative profit shock. Quantitatively, we calibrate a parameterized model, simulate firms' post--shock responses and predict that productivity dispersion is due to the low-cost firm increasing R&D efforts and the high-cost firm doing the opposite. Empirically, we construct an index of negative profit shocks and provide two reduced-form tests for this mechanism.

Date: 2021-08, Revised 2022-10
New Economics Papers: this item is included in nep-eff, nep-isf, nep-mac and nep-tid
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