Working Paper: NBER ID: w29733
Authors: Yanyou Chen; Daniel Xu
Abstract: This paper develops and estimates an industry equilibrium model of manufacturing plants in the Korean electric motor industry from 1991 to 1996. Plant-level decisions on R&D, physical capital investment, entry, and exit are integrated in a dynamic setting with knowledge spillovers. We use a simulated method of moments estimator and the novel approximation method of Weintraub, Benkard and Van Roy (2008) to estimate the R&D cost, magnitude of knowledge spillovers, adjustment costs of physical investment, and plant scrap value distribution. Knowledge spillovers are essential to explaining the firm-level productivity evolution and the equilibrium market configuration. A counterfactual experiment reveals that a 15% R&D subsidy maximizes industry output and is broadly consistent with a past policy initiative of the Korean government.
Keywords: R&D investment; knowledge spillovers; productivity; industry dynamics; Korean electric motor industry
JEL Codes: L11; O33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| R&D investment (O32) | future productivity (O49) |
| knowledge spillovers (O36) | productivity improvement (O49) |
| adjustment costs (J30) | R&D dynamics (O32) |
| knowledge spillovers (O36) | total R&D efforts (O32) |
| government policy (F68) | industry output (L69) |