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Innovation, Reallocation, and Growth

Becker Friedman Institute for Research in Economics Working Paper No. 21

58 Pages Posted: 1 Dec 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

Federal Reserve Board

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 highand 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 and 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). Becker Friedman Institute for Research in Economics Working Paper No. 21, Available at SSRN: https://ssrn.com/abstract=3079898 or http://dx.doi.org/10.2139/ssrn.3079898

Daron Acemoglu (Contact Author)

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

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Centre for Economic Policy Research (CEPR)

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National Bureau of Economic Research (NBER)

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Ufuk Akcigit

University of Chicago - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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

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Harun Alp

Federal Reserve Board ( email )

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Nicholas Bloom

Stanford University - Department of Economics ( email )

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

National Bureau of Economic Research (NBER) ( email )

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William R. Kerr

Harvard University - Entrepreneurial Management Unit ( email )

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