Working Paper: CEPR ID: DP8843
Authors: Michael D. König; Jan Lorenz; Fabrizio Zilibotti
Abstract: We develop a tractable dynamic model of productivity growth and technology spillovers that is consistent with the emergence of real world empirical productivity distributions. Firms can improve productivity by engaging in in-house R&D, or alternatively, by trying to imitate other firms? technologies subject to limits to their absorptive capacities. The outcome of both strategies is stochastic. The choice between in-house R&D and imitation is endogenous, and based on firms? profit maximization motive. Firms closer to the technological frontier have less imitation opportunities, and tend to choose more often in-house R&D, consistent with the empirical evidence. The equilibrium choice leads to balanced growth featuring persistent productivity differences even when starting from ex-ante identical firms. The long run productivity distribution can be described as a traveling wave with tails following Zipf?s law as it can be observed in the empirical data. Idiosyncratic shocks to firms? productivities of R&D reduce inequality, but also lead to lower aggregate productivity and industry performance.
Keywords: absorptive capacity; growth; innovation; productivity differences; quality ladder; spillovers
JEL Codes: E10; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Firms' choices (in-house R&D vs. imitation) (D25) | Productivity levels (O49) |
| Firms closer to the technological frontier (F12) | Investment in in-house R&D (O32) |
| R&D efforts (O32) | Shape of the productivity distribution (D39) |
| Idiosyncratic shocks to productivity from R&D efforts (O49) | Inequality (D63) |
| Idiosyncratic shocks to productivity from R&D efforts (O49) | Aggregate productivity (E23) |
| Firms' choices (in-house R&D vs. imitation) (D25) | Persistent productivity differences among firms (L25) |