Business Cycle during Structural Change: Arthur Lewis' Theory from a Neoclassical Perspective

Michael D. König, Kjetil Storesletten, Zheng Song and Fabrizio Zilibotti
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Michael D. König: Vrije Universiteit Amsterdam, School of Business and Economics, https://vu.nl/nl
Zheng Song: Chinese University of Hong Kong, Department of Economics
Fabrizio Zilibotti: Cowles Foundation, Yale University, https://economics.yale.edu/people/faculty/fabrizio-zilibotti

No 2237, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We construct a model of rm dynamics with heterogenous productivity and distortions. The productivity distribution evolves endogenously as the result of the decisions of firms seeking to upgrade their productivity over time. Firms can adopt two strategies toward that end: imitation and innovation. The theory bears predictions about the evolution of the productivity distribution. We structurally estimate the stationary state of the dynamic model targeting moments of the empirical distribution of R&D and TFP growth in China during the period 2007-2012. The estimated model ts the Chinese data well. We compare the estimates with those obtained using data for Taiwan and find the results to be robust. We perform counterfactuals to study the effect of alternative policies. We find large effects of R&D misallocation on long-run growth.

Keywords: China; Imitation; Innovation; Misallocation; Productivity; R&D; Subsidies; Taiwan; TFP Growth; Traveling Wave (search for similar items in EconPapers)
JEL-codes: O31 O33 O47 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2020-06
New Economics Papers: this item is included in nep-cna, nep-cse, nep-eff, nep-ino, nep-sbm and nep-tid
References: View references in EconPapers View complete reference list from CitEc
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Published in Econometrica, (July, 2022), 90(4): 1615–1654

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Working Paper: Business Cycle during Structural Change: Arthur Lewis' Theory from a Neoclassical Perspective (2019)
Working Paper: Business Cycle during Structural Change: Arthur Lewis' Theory from a Neoclassical Perspective (2019)
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