Innovation vs Imitation and the Evolution of Productivity Distributions

52 Pages Posted: 1 Mar 2012

See all articles by Michael König

Michael König

University of Zurich - Department of Economics

Jan Lorenz

Jacobs University Bremen

Fabrizio Zilibotti

Yale University; Centre for Economic Policy Research (CEPR)

Date Written: February 2012

Abstract

We develop a tractable dynamic model of productivity growth and technology spillovers that is consistent with the emergence of real world empirical productivity distributions. Firms can improve productivity by engaging in in-house R&D, or alternatively, by trying to imitate other firms’ technologies subject to limits to their absorptive capacities. The outcome of both strategies is stochastic. The choice between in-house R&D and imitation is endogenous, and based on firms’ profit maximization motive. Firms closer to the technological frontier have less imitation opportunities, and tend to choose more often in-house R&D, consistent with the empirical evidence. The equilibrium choice leads to balanced growth featuring persistent productivity differences even when starting from ex-ante identical firms. The long run productivity distribution can be described as a traveling wave with tails following Zipf’s law as it can be observed in the empirical data. Idiosyncratic shocks to firms’ productivities of R&D reduce inequality, but also lead to lower aggregate productivity and industry performance.

Keywords: absorptive capacity, growth, innovation, productivity difference, quality ladder, spillovers

JEL Classification: E10, O40

Suggested Citation

König, Michael and Lorenz, Jan and Zilibotti, Fabrizio, Innovation vs Imitation and the Evolution of Productivity Distributions (February 2012). CEPR Discussion Paper No. DP8843, Available at SSRN: https://ssrn.com/abstract=2013836

Michael König (Contact Author)

University of Zurich - Department of Economics ( email )

Zürich
Switzerland

Jan Lorenz

Jacobs University Bremen ( email )

Campus Ring 1
Bremen, 28759
Germany

Fabrizio Zilibotti

Yale University ( email )

New Haven, CT 06520
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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