Accession Number PB2013-109541
Title Innovation, Reallocation and Growth.
Publication Date Apr 2013
Media Count 48p
Personal Author D. Acemoglu N. Bloom U. Akcigit W. Kerr
Abstract We build a model of firm-level innovation, productivity growth and reallocation featuring endogenous entry and exit. A key feature 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 detailed 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, and its implied elasticities are in the ballpark of a range of micro estimates. We find industrial policy subsidizing either the R&D or the continued operation of incumbents reduces growth and welfare. For example, a subsidy to incumbent R&D equivalent to 53 of GDP reduces welfare by about 1.53 because it deters entry of new high-type firms. On the contrary, substantial improvements (of the order of 53 improvement in welfare) are possible if the continued operation of incumbents is taxed while at the same time R&D by incumbents and new entrants is subsidized. This is because of a strong selection effect: R&D resources (skilled labor) are inefficiently used by low-type incumbent firms. Subsidies to incumbents encourage the survival and expansion of these firms at the expense of potential high-type entrants. We show that optimal policy encourages the exit of lowtype firms and supports R&D by high-type incumbents and entry.
Keywords Businesses
Economic analysis
Economic conditions
Economic development
Economic trends
Geographic areas
Job creation
Service industries
Service sector

Source Agency Department of Commerce, Bureau of Census
NTIS Subject Category 94D - Job Environment
91J - Economic Studies
96A - Domestic Commerce, Marketing, & Economics
70D - Personnel Management, Labor Relations & Manpower Studies
Corporate Author Massachusetts Inst. of Tech., Cambridge.
Document Type Technical report
Title Note N/A
NTIS Issue Number 1322
Contract Number N/A

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