Eventually, Noise and Imitation Implies Balanced Growth

This paper adds imitation by incumbent rms, and not just by new entrants, to the model of selection and growth developed in Luttmer [2007]. Noisy rm-level innovation and imitation give rise to a long-run growth rate that exceeds the average rate at which individual rms innovate. It can be shown, in simple examples, that the economy converges to a long-run balanced growth path from compactly supported initial productivity distributions. The right tail of the stationary distribution of de-trended productivity is approximately Pareto. The tail index of this distribution depends on the rate at which incumbents are able to imitate only indirectly, through general equilibrium e ects of this parameter on the equilibrium growth rate.