R&D Heterogeneity and Countercyclical Productivity Dispersion
General Economics
2022-11-01 v4 Economics
Abstract
Why is the U.S. industry-level productivity dispersion countercyclical? Theoretically, we build a duopoly model in which heterogeneous R&D costs determine firms' optimal behaviors and the equilibrium technology gap after a negative profit shock. Quantitatively, we calibrate a parameterized model, simulate firms' post--shock responses and predict that productivity dispersion is due to the low-cost firm increasing R&D efforts and the high-cost firm doing the opposite. Empirically, we construct an index of negative profit shocks and provide two reduced-form tests for this mechanism.
Keywords
Cite
@article{arxiv.2108.02272,
title = {R&D Heterogeneity and Countercyclical Productivity Dispersion},
author = {Shuowen Chen and Yang Ming},
journal= {arXiv preprint arXiv:2108.02272},
year = {2022}
}