Working Paper: NBER ID: w27404
Authors: Michael König Zheng; Michael Song; Kjetil Storesletten; Fabrizio Zilibotti
Abstract: We construct an endogenous growth model with random interactions where firms are subject to distortions. The TFP distribution evolves endogenously as firms seek to upgrade their technology over time either by innovating or by imitating other firms. We use the model to quantify the effects of misallocation on TFP growth in emerging economies. 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 2007–12. The estimated model fits the Chinese data well. We compare the estimates with those obtained using data for Taiwan and perform counterfactuals to study the effect of alternative policies. R&D misallocation has a large effect on TFP growth.
Keywords: R&D; innovation; China; productivity growth; misallocation
JEL Codes: L16; O31; O47; O53
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| R&D misallocation (O32) | TFP growth (O49) |
| Firms' decisions to invest in R&D (O31) | R&D misallocation (O32) |
| Firms' TFP levels and sizes (L25) | Probability of successful imitation (C59) |
| R&D firms (O32) | TFP growth (O49) |
| Reducing misallocation (D61) | TFP growth (O49) |
| Large R&D subsidies (O38) | TFP growth (O49) |