The Golden Triangle: Back in Business (A)
Citation:
Kerr, William R. "The Golden Triangle: Back in Business (A)." Harvard Business School Multimedia/Video Supplement 820-704, October 2019. View Details|
Article American Economic Review Summer, 2018 Innovation, Reallocation and Growth |
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 U.S. 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% 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; Market Entry and Exit; Growth and Development; Innovation and Invention; Research and Development; Performance Productivity;
Citation:
Acemoglu, Daron, Ufuk Akcigit, Harun Alp, Nicholas Bloom, and William R. Kerr. "Innovation, Reallocation and Growth." American Economic Review 108, no. 11 (November 2018): 3450–3491.
