Innovation, Reallocation and Growth

Daron Acemoglu, Ufuk Akcigit, Nicholas Bloom and William Kerr

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

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 5% of GDP reduces welfare by about 1.5% because it deters entry of new high-type firms. 0n the contrary, substantial improvements (of the order of 5% 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 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2013-04-13
New Economics Papers: this item is included in nep-com, nep-cse, nep-ent, nep-ino, nep-knm, nep-mac and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (144)

Downloads: (external link)
https://economics.sas.upenn.edu/sites/default/files/filevault/13-018.pdf (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:pen:papers:13-018

Access Statistics for this paper

More papers in PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania 133 South 36th Street, Philadelphia, PA 19104. Contact information at EDIRC.
Bibliographic data for series maintained by Administrator ().