Innovation, Reallocation and Growth

59 Pages Posted: 18 Apr 2013 Last revised: 16 Nov 2017

See all articles by Daron Acemoglu

Daron Acemoglu

Massachusetts Institute of Technology (MIT) - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Ufuk Akcigit

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER); Center for Economic and Policy Research (CEPR)

Harun Alp

University of Pennsylvania

Nicholas Bloom

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

William Kerr

Harvard University - Entrepreneurial Management Unit

Multiple version iconThere are 7 versions of this paper

Date Written: November 14, 2017

Abstract

We build a model of firm-level innovation, productivity growth and reallocation featuring endogenous entry and exit. A new and central economic force 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 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. Taxing the continued operation of incumbents can lead to sizable gains (of the order of 1.4% improvement in welfare) by encouraging exit of less productive firms and freeing up skilled labor to be used for R&D by high-type incumbents. Subsidies to the R&D of incumbents do not achieve this objective because they encourage the survival and expansion of low-type firms.

Keywords: entry, growth, industrial policy, innovation, R&D, reallocation, selection

JEL Classification: E2, L1, O31, O32, O33

Suggested Citation

Acemoglu, Daron and Akcigit, Ufuk and Alp, Harun and Bloom, Nicholas and Kerr, William R., Innovation, Reallocation and Growth (November 14, 2017). Harvard Business School Entrepreneurial Management Working Paper No. 13-088. Available at SSRN: https://ssrn.com/abstract=2251936 or http://dx.doi.org/10.2139/ssrn.2251936

Daron Acemoglu

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
Room E52-380b
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Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ufuk Akcigit

University of Chicago - Department of Economics ( email )

1126 E. 59th St
Chicago, IL 60637
United States

HOME PAGE: http://www.ufukakcigit.com

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Center for Economic and Policy Research (CEPR) ( email )

London
United Kingdom

Harun Alp

University of Pennsylvania ( email )

Philadelphia, PA 19104
United States

Nicholas Bloom

Stanford University - Department of Economics ( email )

Landau Economics Building, Room 231
579 Serra Mall
Stanford, CA 94305-6072
United States
650-725-7836 (Phone)

HOME PAGE: http://economics.stanford.edu/faculty/bloom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

William R. Kerr (Contact Author)

Harvard University - Entrepreneurial Management Unit ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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