innovation, firm dynamics, and...

Innovation, Firm Dynamics, and Growth

Ufuk AkcigitUniversity of Chicago & NBER

SEEK - October 8, 2015

Ufuk Akcigit (University of Chicago & NBER) Innovation, Firm Dynamics, and Growth 5th SEEK Conference - # 1

Background

Understanding the aggregate implications ofgrowth & industrial policies requires a goodunderstanding of micro players of themacroeconomic system.

Going from micro-to-macro is crucial.

Policies that seem good in partial equilibriummight have different general equilibrium impacts:

Aggregate price effectCompetition, Schumpeterian effectComposition/Reallocation effect


Research Approach

Start with empirical regularities in the micro data

Construct a general equilibrium theory of firmdynamics and aggregate growth

Estimate the structural parameters of the modelusing micro firm-level data

Conduct counterfactual policy experimentsIncumbent R&D subsidyEntry subsidySubsidy to incumbent fixed operation cost


Today’s Roadmap

1 Firms

2 Innovators

3 Innovations

4 Implications


Part 1: Firms Akcigit and Kerr (2010)

PART 1:

FIRMS



The Model Economy

0 1

quality level

q

sector j

US Economy



The Model Economy

0 1

quality level

q

sector j

GDP = Sectors combined



Sector-specific Productivities

0 1

quality level

q

sector j



Example of a Firm

0 1

quality level q

sector j



Example of another Firm

0 1

quality level q

sector j



Productivity Growth: Internal R&D

0 1

quality level q

sector j

internal R&D



Productivity Growth: External R&D

0 1

quality level q

sector j

External R&D



Reallocation is Taking Place...

0 1

quality level q

sector j

External R&D



Competition Creates Selection

0 1

quality level q

sector j

External R&D



Eventually Some Firms Exit

0 1

quality level q

sector j

External R&D

Exit



In the Meantime...

0 1

quality level q

sector j



Some New Entrants Show Up

0 1

quality level q

sector j

new entrants



And New Entrants Replace Incumbents

0 1

quality level q

sector j



General Equilibrium Effects of an Entry Subsidy

Aggregate price effect

Competition effect

Composition/Reallocation effect





Competition effect


R&D Input prices, wages/salaries, will increase.





Competition effect






Competition effect


Entrepreneurial talent is heterogeneous.





Competition effect


Some are good entrepreneurs and some are bad:





Competition effect


Some are good entrepreneurs and some are bad:

VS



Akcigit and Kerr (2010)

We estimate this model using US firms.

Data: Census of Manufacturing

We find:Small firms are more innovative relative to their size.

they do disproportionately more external innovations.

they generate larger spillovers per R&D dollars spent.


Part 1: Firms Acemoglu, Akcigit, Bloom, and Kerr (2013)

Acemoglu, Akcigit, Bloom, Kerr (2013)

Findings:

Subsidy to incumbent R&D is not boostinggrowth.

Entry subsidy has a mild positive effect ongrowth.

Taxing incumbent’s operations increases growthby exploiting the selection/reallocation margins.


Part 1: Firms Acemoglu, Akcigit, Bloom, and Kerr (2013)

PART 2:

INNOVATORS


Part 2: Innovators Akcigit, Baslandze, and Stantcheva (2015)

Alexander G. Bell

Inventor of thetelephone (1876).

Created Bell TelephoneCompany (1877).

By 1886: more than150,000 people in U.S.own telephones.



James L. Kraft

Invented apasteurizationtechnique for cheese.

Created Kraft Foods.

His company grew intoa conglomerate: mostpopular food productsand employing morethan 100,000 people.



Ralph Baer

Created TV gameunit with paddlecontrols.

Today, the videogaming industry isworth $66 billion.



Introduction

... and the list goes on.

In addition to being very prolific inventors, theseinnovators had something else in common:

They were all immigrants.

What determines the patterns of migration?



Akcigit, Baslandze, Stantcheva (2015)



Akcigit, Baslandze, Stantcheva (2015)0

.005

.01

.015

.02

.025

0 200 400 600Citations-weighted Patents

Top 10% Inventors Top

Top 1% Superstar Inventors

Shunpei Yamazaki 53,7801patentsFThe1most1prolific1inventor1until12008Born:1JapanWorks:1Japan

Salman Akram 57131patentsFMicron1TechnologyBorn:1NigeriaWorks:1U.S.

Edwin Herbert Land155351patentsFFounder1of1PolaroidBorn:1U.S.Worked:1U.S.

5% Inventors



Case Study: U.S. TRA 1986, Top 1% Inventors

Elasticity= 3.11 (.659)

-.4

-.3

-.2

-.1

T

op ta

x ra

te d

iffer

entia

l

.51

1.5

22.

5N

orm

. Num

ber

of F

orei

gn T

op 1

% In

vent

ors

1982 1984 1986 1988 1990 1992

Year

U.S. Synthetic U.S.Differential tax rate



Case Study: Denmark’s 1992 Tax Reform

Elasticity= .77 (.252)

-.6

-.4

-.2

0.2

.4

Top

tax

rate

diff

eren

tial

01

23

4N

orm

. sha

re o

f for

eign

inve

ntor

s

1985 1990 1995 2000 2005

Year

Denmark Synthetic DenmarkTop tax rate differential



Superstar Responses in Different Countries

Washington Center forEquitable Growth

Source: Author’s calculations and Akcigit, Baslandze, and Stantcheva. “Taxation and the International Mobility of Inventors.”NBER Working Paper 21024, March 2015.

How do Superstar (Top 1%) Inventors Respond to Decreased Top Tax Rates?This chart shows how many domestic superstar (top 1%) inventors and foreign superstar inventors would be added to a country ifthe top tax rate decreased by 10 percentage points from its level in that country in the year 2000.

Canada

Italy

United Kingdom

United States

Japan

Switzerland

30.6%

35.5%

32.6%

36.1%

35.1%

23.7%

Percent increase in foreign superstar inventors

If the top marginal tax rateis reduced from 48% to 38%...

Percent increase in domestic superstar inventors






43.8%DenmarkIf the top marginal tax rateis reduced from 64% to 54%...

1.9%

0.3%

5.5%

4.0%

10.6%

56.4%FranceIf the top marginaltax rate is reducedfrom 72% to 62%...

6.1%

0.1%

7.9%

Washington Center forEquitable Growth

Source: Author’s calculations and Akcigit, Baslandze, and Stantcheva. “Taxation and the International Mobility of Inventors.”NBER Working Paper 21024, March 2015.

How do Superstar (Top 1%) Inventors Respond to Decreased Top Tax Rates?This chart shows how many domestic superstar (top 1%) inventors and foreign superstar inventors would be added to a country ifthe top tax rate decreased by 10 percentage points from its level in that country in the year 2000.

Canada

Italy

United Kingdom

United States

Japan

Switzerland

30.6%

35.5%

32.6%

36.1%

35.1%

23.7%

Percent increase in foreign superstar inventors


Percent increase in domestic superstar inventors






43.8%DenmarkIf the top marginal tax rateis reduced from 64% to 54%...

1.9%

0.3%

5.5%

4.0%

10.6%

56.4%FranceIf the top marginaltax rate is reducedfrom 72% to 62%...

6.1%

0.1%

7.9%


Part 3: Innovations, Ideas Akcigit, Celik, and Greenwood (2015)

PART 3:

INNOVATIONS &

MARKET FOR IDEAS



Safety Pin



Walter Hunt (1796-1859)



USPTO Patent Number 6281



0

5

10

15

20

25

1975 1980 1985 1990 1995 2000grant year

domestic only all

in % terms

Fraction of Patents Sold



Average = 5.5 years

0

.02

.04

.06

.08

.1

.12

Fre

quen

cy

0 4 8 12 16duration

in number of years

Patent Sale Duration



EDWARD VAN WINKLE

(1841-1923)

Main problem:Informational frictions.

Trade facilitated by theemergence ofintermediaries.

They economize on theinformation costs

They help to matchsellers and buyers ofpatent rights.



Research Questions

Are ideas born to their best users?

How big is the misallocation of ideas?

How much does the secondary market improvethe allocation of ideas?



Empirical Facts We Document

1 Real sales and market value are negativelycorrelated with the distance between a firm andits patents.

2 Patents which are more distant are more likely tobe sold.

3 After a patent resale, the distance between apatent and its owner decreases.



Akcigit, Celik, Greenwood (2014)

We estimate the model using the micro firm andpatent data.

We find that reallocation of ideas increasesproductivity growth from

1.8% → 2%


Part 4: Innovation, Inequality, and Social Mobility Aghion, Akcigit, Bergeaud, Blundell, Hemous (2015)

PART 4:

INNOVATION, INEQUALITY

AND SOCIAL MOBILITY



Innovation and Income Inequality



Innovation and Social Mobility


Part 4: Innovation, Inequality, and Social Mobility

Aghion, Akcigit, Bergeaud, Blundell, Hemous (2015)

We find:Innovativeness increases top income inequality.

We show that innovation does not increasebroader measures of inequality which do notfocus on top incomes.

Entrant innovation is positively correlated withsocial mobility, but less so in states with moreintense incumbent lobbying activities.


Conclusions

General equilibrium is very important for policy.

Inventors DO respond to policy.

A well-functioning market for ideas/patentswould help economic growth.

Innovation is an important social elevator.

The positive effect of entrant innovation isdampened by lobbying of the incumbents.


THANK YOU!


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