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arXiv · 2108.02272

R&D Heterogeneity and Countercyclical Productivity Dispersion

Shuowen Chen·Yang Ming
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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.

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Shuowen Chen, Yang Ming. 2021-08-04. R&D Heterogeneity and Countercyclical Productivity Dispersion. https://arxiv.org/abs/2108.02272

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