Kjetil Storesletten (University of Oslo) (webinar)

“From Imitation to Innovation: Where Is all that Chinese R&D Going?”

Abstract: We construct a model of firm dynamics with heterogenous productivity and distortions. The productivity distribution evolves endogenously as firms seek to upgrade their productivity 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 2007–2012. The estimated model fits the Chinese data well. We compare the estimates with those obtained using data for Taiwan. We perform counterfactuals to study the effect of alternative policies. We find large effects of R&D misallocation on TFP growth.

Joint with Michael König, Zheng Michael Song and Fabrizio Zilibotti.