INNOVATION, REALLOCATION AND GROWTH

Daron Acemoglu, Ufuk Akcigit, Nicholas Bloom and William Kerr

Working Papers from U.S. Census Bureau, Center for Economic Studies

Abstract: We build a model of firm-level innovation, productivity growth and reallocation featuring endogenous entry and exit. A key feature is the selection between high- and low-type firms, which differ in terms of their innovative capacity. We estimate the parameters of the model using detailed US Census micro data on firm-level output, R&D and patenting. The model provides a good fit to the dynamics of firm entry and exit, output and R&D, and its implied elasticities are in the ballpark of a range of micro estimates. We find industrial policy subsidizing either the R&D or the continued operation of incumbents reduces growth and welfare. For example, a subsidy to incumbent R&D equivalent to 53 of GDP reduces welfare by about 1.53 because it deters entry of new high-type firms. On the contrary, substantial improvements (of the order of 53 improvement in welfare) are possible if the continued operation of incumbents is taxed while at the same time R&D by incumbents and new entrants is subsidized. This is because of a strong selection effect: R&D resources (skilled labor) are inefficiently used by low-type incumbent firms. Subsidies to incumbents encourage the survival and expansion of these firms at the expense of potential high-type entrants. We show that optimal policy encourages the exit of low-type firms and supports R&D by high-type incumbents and entry.

Keywords: entry; growth; industrial policy; innovation; R&D; reallocation; selection. (search for similar items in EconPapers)
JEL-codes: E2 L1 O31 O32 O33 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2013-04
New Economics Papers: this item is included in nep-com, nep-cse, nep-ent, nep-ino, nep-knm, nep-mac, nep-sbm and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (141)

Downloads: (external link)
https://www2.census.gov/ces/wp/2013/CES-WP-13-23.pdf First version, 2013 (application/pdf)

Related works:
Journal Article: Innovation, Reallocation, and Growth (2018)
Working Paper: Innovation, Reallocation, and Growth (2017)
Working Paper: Innovation, Reallocation and Growth (2015)
Working Paper: Innovation, Reallocation and Growth (2013)
Working Paper: Innovation, reallocation and growth (2013)
Working Paper: Innovation, Reallocation and Growth (2013)
Working Paper: Innovation, Reallocation and Growth (2013)
Working Paper: Innovation, reallocation and growth (2013)
Working Paper: Innovation, Reallocation and Growth (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cen:wpaper:13-23

Access Statistics for this paper

More papers in Working Papers from U.S. Census Bureau, Center for Economic Studies Contact information at EDIRC.
Bibliographic data for series maintained by Dawn Anderson ().