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Innovation, Reallocation and Growth

William Kerr (), Ufuk Akcigit (), Nicholas Bloom () and Daron Acemoglu

No 1137, 2012 Meeting Papers from Society for Economic Dynamics

Abstract: We build a micro-founded model with endogenous firm innovation and growth. This enables us to examine the forces jointly driving innovation, productivity and reallocation. We estimate this using simulated methods of moments on detailed US Census micro data on output, R&D and patenting, obtaining a good fit to the micro-data. We also validate our model by showing a good fit between the predicted impact for R&D tax credits and skilled labor supply policies in our model to the actual data on previous episodes of these policies. Finally, we run a number of simulations on common industrial support policy. We find that a general entry subsidy increases growth rates by about 0.2%, but an R&D tax credit targeted at incumbent firms increases growth by almost 0.5%. In contrast, subsidizing fixed-costs of production helps to support failing incumbents, reducing entry by more innovative firms, and lowering growth by over 0.4%. This highlights the importance of evaluating the impact of industrial policies on both incumbents and potential entrants in a general equilibrium model.

Date: 2012
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Related works:
Working Paper: Innovation, Reallocation and Growth (2015) Downloads
Working Paper: Innovation, reallocation and growth (2013) Downloads
Working Paper: INNOVATION, REALLOCATION AND GROWTH (2013) Downloads
Working Paper: Innovation, Reallocation and Growth (2013) Downloads
Working Paper: Innovation, reallocation and growth (2013) Downloads
Working Paper: Innovation, Reallocation and Growth (2013) Downloads
Working Paper: Innovation, Reallocation and Growth (2013) Downloads
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