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American Economic Review Vol. 108 No. 11 2018

Innovation, Reallocation, and Growth

Daron Acemoglu1; Ufuk Akcigit2; Harun Alp3; Nicholas Bloom4; William R. Kerr5

1 Department of Economics, MIT, 50 Memorial Drive, Cambridge, MA 02142, CEPR, and NBER (email: ) · 2 Economics, University of Chicago, 1126 E. 59th Street, Chicago, IL 60637, CEPR, and NBER (email: ) · 3 Department of Economics, University of Pennsylvania, 133 South 36th Street, Philadelphia, PA 19104 (email: ) · 4 Economics, Stanford University, 579 Serra Mall, Stanford, CA 94305, CEPR, and NBER (email: ) · 5 Harvard Business School, Rock Center 212, Boston, MA 02163, Bank of Finland, and NBER (email: )

open access

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 microdata 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 percent 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.

DOI
10.1257/aer.20130470
Volume
108
Issue
11
Pages
3450-3491
Language
en
Sources
openalex bibtex:phds-export.bib crossref

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