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

Author(s): Michael König, Zheng Song, Kjetil Storesletten and Fabrizio Zilibotti

Publication Date: June 2020

Keyword(s): China, Imitation, Innovation, Misallocation, productivity, R&D, Subsidies, Taiwan, TFP growth and Traveling Wave

Programme Area(s): Macroeconomics and Growth

Abstract: We construct a model of firm dynamics with heterogenous productivity and distortions. The productivity distribution evolves endogenously as the result of the decisions of firms seeking to upgrade their productivity over time. Firms can adopt two strategies toward that end: imitation and innovation. The theory bears predictions about the evolution of the productivity distribution. 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 find the results to be robust. We perform counterfactuals to study the effect of alternative policies. We find large effects of R&D misallocation on long-run growth.

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Bibliographic Reference

König, M, Song, Z, Storesletten, K and Zilibotti, F. 2020. 'From Imitation to Innovation: Where Is all that Chinese R&D Going?'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14966