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From Imitation to Innovation: Where Is All That Chinese R&D Going?

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  • Michael König
  • Kjetil Storesletten
  • Zheng Song
  • 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 2007–2012. 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.

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  • Michael König & Kjetil Storesletten & Zheng Song & Fabrizio Zilibotti, 2022. "From Imitation to Innovation: Where Is All That Chinese R&D Going?," Econometrica, Econometric Society, vol. 90(4), pages 1615-1654, July.
    • Handle: RePEc:wly:emetrp:v:90:y:2022:i:4:p:1615-1654
    DOI: 10.3982/ECTA18586
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    Cited by:

    1. Stephen Ayerst & Loren Brandt & Diego Restuccia, 2023. "Distortions, Producer Dynamics, and Aggregate Productivity: A General Equilibrium Analysis," Working Papers tecipa-748, University of Toronto, Department of Economics.
    2. Gomes, Orlando, 2024. "Optimal planning of technological options and productivity distribution dynamics," Economic Modelling, Elsevier, vol. 130(C).
    3. Dachs, Bernhard & Amoroso, Sara & Castellani, Davide & Papanastassiou, Marina & von Zedtwitz, Max, 2024. "The internationalisation of R&D: Past, present and future," International Business Review, Elsevier, vol. 33(1).
    4. Wang, Wenya & Yang, Ei, 2023. "Multi-product firms and misallocation," Journal of Development Economics, Elsevier, vol. 163(C).
    5. Liu, Qing & Qiu, Larry D. & Wei, Xing & Zhan, Chaoqun, 2024. "The (dis)connection between R&D and productivity in China: Policy implications of R&D tax credits," Journal of Comparative Economics, Elsevier, vol. 52(1), pages 297-320.
    6. Jess Benhabib & Jesse Perla & Christopher Tonetti, 2021. "Reconciling Models of Diffusion and Innovation: A Theory of the Productivity Distribution and Technology Frontier," Econometrica, Econometric Society, vol. 89(5), pages 2261-2301, September.
    7. Zhang, Yiran, 2021. "Quantitative Assessment on Frictions in Technology Market," MPRA Paper 109470, University Library of Munich, Germany.
    8. Orlando Gomes, 2024. "The world’s productivity distribution and optimal knowledge absorption," Economics and Business Letters, Oviedo University Press, vol. 13(2), pages 91-103.
    9. Ruohan Wu, 2024. "Moderating Effect of Innovation Strategy on Learning-by-Exporting: A Cross-Country Study," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 52(2), pages 131-144, September.
    10. Yundan Gong & Aoife Hanley, 2021. "Exports and New Products in China – A Generalised Propensity Score Approach with Firm-to-Firm Spillovers," Journal of Development Studies, Taylor & Francis Journals, vol. 57(12), pages 2136-2155, December.
    11. Long, Yingzi & Cai, Dapeng, 2023. "Why do governments subsidize R&D-Intensive foreign direct investment?," Economic Modelling, Elsevier, vol. 129(C).
    12. Cheng, Hong & Fan, Hanbing & Hoshi, Takeo & Hu, Dezhuang, 2024. "State ownership, political connection, and innovation subsidies in China," Journal of the Japanese and International Economies, Elsevier, vol. 71(C).
    13. Cao, Linyi & Jiang, Helu & Li, Guangwei & Zhu, Lijun, 2024. "Haste makes waste? Quantity-based subsidies under heterogeneous innovations," Journal of Monetary Economics, Elsevier, vol. 142(C).
    14. Zhang, Yiran, 2021. "Technology Market Frictions and Economic Development: Evidence from China," MPRA Paper 122159, University Library of Munich, Germany, revised 21 Sep 2024.
    15. Sabien Dobbelaere & Michael D. König & Andrin Spescha & Martin Wörter, 2023. "R&D Decisions and Productivity Growth: Evidence from Switzerland and the Netherlands," Tinbergen Institute Discussion Papers 23-080/VI, Tinbergen Institute.
    16. Lee Branstetter & Guangwei Li, 2024. "The Challenges of Chinese Industrial Policy," Entrepreneurship and Innovation Policy and the Economy, University of Chicago Press, vol. 3(1), pages 77-113.
    17. Dobbelaere, Sabien & König, Michael D. & Spescha, Andrin & Wörter, Martin, 2024. "R&D Decisions and Productivity Growth: Evidence from Switzerland and the Netherlands," IZA Discussion Papers 17026, Institute of Labor Economics (IZA).
    18. Xin Su & Shengwen Wang, 2024. "Impact of China’s free trade zones on the innovation performance of firms: evidence from a quasi-natural experiment," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-17, December.

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    More about this item

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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