Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/282382 
Year of Publication: 
2023
Series/Report no.: 
CESifo Working Paper No. 10694
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
In this paper we replicate most of the stylized facts characterizing the decline in business dynamism in the USA highlighted by Akcigit and Ates (2021) and provide an explanation of their emergence by means of a macroeconomic agent-based model populated by two types of firms: innovators who generate new and more productive capital goods, and entrepreneurs who employ labor and capital goods to produce consumption goods. A key ingredient of the model is the assumption that the entrepreneurs' access to new and better capital goods depends on the knowledge gap, i.e., the wedge between the firm's technical knowledge and the state of technology embodied in new capital goods. Within this framework, we investigate the obstacles to knowledge diffusion subsequently leading to declining business dynamism. Our findings indicate that only when knowledge diffusion decreases in both the technology imitation and adoption processes does it lead to high market concentration and markups, falling labor share and productivity growth. Patents are an important obstacle to knowledge diffusion. We find an inverse U-shaped relationship between patent strength and growth: moderate levels of patent protection can stimulate growth, but strong protection leads to rising market power and slower growth.
Subjects: 
innovation
imitation
knowledge diffusion
knowledge gap
patents
JEL: 
O31
O32
O33
O34
Document Type: 
Working Paper
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