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Coordination Frictions and Economic Growth

Gabrovski, Miroslav (2017): Coordination Frictions and Economic Growth.

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In practice, firms face a mass of scarce innovation projects. They choose a particular research avenue towards which to direct their effort, but do not coordinate these choices. This gives rise to coordination frictions. Our paper develops an expanding-variety endogenous growth model to study the impact of these frictions on the economy. The coordination failure generates a mass of foregone innovation and reduces the economy-wide research intensity. Both of these effects decrease the growth rate. Because of this, the frictions also amplify the fraction of wasteful simultaneous innovation. A numerical exercise suggests that the impact of coordination frictions on both the growth rate and welfare is substantial.

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