Technological Innovation, Resource Allocation, and Growth
Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)
Northwestern University - Kellogg School of Management - Department of Finance; National Bureau of Economic Research (NBER)
University of Chicago - Booth School of Business
Indiana University - Kelley School of Business - Department of Finance
July 11, 2012
We explore the role of technological innovation as a source of economic growth by constructing direct measures of innovation at the firm level. We combine patent data for US firms from 1926 to 2010 with the stock market response to news about patents to assess the economic importance of each innovation. Our innovation measure predicts productivity and output at the firm, industry and aggregate level. Furthermore, capital and labor flow away from non-innovating firms towards innovating firms within an industry. There exists a similar, though weaker, pattern across industries. Cross-industry differences in technological innovation are strongly related to subsequent differences in industry output growth.
Number of Pages in PDF File: 94
Keywords: Innovation, patents, growth, reallocation
JEL Classification: G14, E32, O3, O4
Date posted: December 22, 2012
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