Working Paper: CEPR ID: DP14966
Authors: Michael Konig; Zheng Song; Kjetil Storesletten; Fabrizio Zilibotti
Abstract: We construct a model of firm dynamics with heterogenous productivity and distortions. The productivity distribution evolves endogenously as the result of the decisions of firms seeking to upgrade their productivity over time. Firms can adopt two strategies toward that end: imitation and innovation. The theory bears predictions about the evolution of the productivity distribution. We structurally estimate the stationary state of the dynamic model targeting moments of the empirical distribution of R&D and TFP growth in China during the period 2007-2012. The estimated model fits the Chinese data well. We compare the estimates with those obtained using data for Taiwan and find the results to be robust. We perform counterfactuals to study the effect of alternative policies. We find large effects of R&D misallocation on long-run growth.
Keywords: China; Imitation; Innovation; Misallocation; Productivity; R&D; Subsidies; Taiwan; TFP Growth; Traveling Wave
JEL Codes: O31; O33; O47
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| R&D investment (O32) | productivity growth (O49) |
| R&D misallocation (O32) | annual TFP growth (O49) |
| higher TFP (O49) | R&D investment (O32) |
| lower TFP (D24) | imitation strategy (L15) |
| policy interventions (D78) | R&D behavior (O32) |
| policy interventions (D78) | productivity outcomes (O49) |