Salomé Baslandze and Ia Vardishvili
Working Paper 2022-10a
September 2022 (Revised January 2026)
Abstract:
Large productivity differences across firms reflect substantial ex-ante heterogeneity at entry, yet the origins of this heterogeneity remain poorly understood. This paper shows that innovating spinouts—firms formed by inventors leaving incumbent innovators—are a key endogenous source of high-growth entrepreneurship and aggregate productivity growth. Using inventor mobility in patent data, we document that spinouts systematically outperform other entrants throughout their life cycle, their performance is strongly linked to parent-firm technological strength, and their formation temporarily depresses parent-firm innovation. We develop a Schumpeterian growth model that endogenizes spinout formation and the fundamental tradeoff among knowledge diffusion, creative destruction, and appropriability. Closely disciplined by rich microlevel data, the model implies that spinouts account for a disproportionate share of high-growth firms and nearly 40 percent of aggregate productivity growth, but that inventor departures also impose sizable costs on incumbents, generating a fundamental policy tradeoff. Policy counterfactuals show that relaxing noncompete restrictions raises aggregate growth and welfare and amplifies the effectiveness of entry subsidies.
JEL classification: O30, O43
Key words: innovation, growth, firm dynamics, spinouts, entrepreneurship, noncompete laws
https://doi.org/10.29338/wp2022-10
Salomé Baslandze (baslandze.salome@gmail.com) is with the Federal Reserve Bank of Atlanta and CEPR. Ia Vardishvili (izv0013@auburn.edu) is with Auburn University. The authors thank Ufuk Akcigit, Harun Alp, Rudiger Bachmann, Jeremy Greenwood, David Lagakos, Pau Roldan-Blanco (discussant), Felipe Saffie, Ben Pugsley, and conference and seminar participants at the University of Pennsylvania, the University of Barcelona, the Atlanta Fed, SEA, SED, Konstanz Seminar on Monetary Theory and Monetary Policy, and I-85 Macroeconomics Workshop for useful comments and suggestions. The paper circulated earlier under the title "Entrepreneurship through Spinouts, Innovation and Growth." The views expressed here are those of the authors and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors' responsibility.
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