Innovation, Reallocation and Growth

58 Pages Posted: 28 Apr 2013 Last revised: 12 Jan 2014

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)

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: April 2013

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.

Suggested Citation

Acemoglu, Daron and Akcigit, Ufuk and Bloom, Nicholas and Kerr, William R., Innovation, Reallocation and Growth (April 2013). NBER Working Paper No. w18993. Available at SSRN: https://ssrn.com/abstract=2257183

Daron Acemoglu (Contact Author)

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

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Ufuk Akcigit

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Nicholas Bloom

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William R. Kerr

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