Innovation, Reallocation and Growth

Daron Acemoglu, Ufuk Akcigit, Harun Alp, Nicholas Bloom, William R. Kerr

NBER Working Paper No. 18993
Issued in April 2013, Revised in November 2017
NBER Program(s):, Industrial Organization

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.

Acknowledgments and Disclosures

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Document Object Identifier (DOI): 10.3386/w18993

Published: Daron Acemoglu & Ufuk Akcigit & Harun Alp & Nicholas Bloom & William Kerr, 2018. "Innovation, Reallocation, and Growth," American Economic Review, vol 108(11), pages 3450-3491. citation courtesy of