VERY PRELIMINARY

Recent empirical evidences at the firm level data emphasize firm het-erogeneity in innovation activities and the different effect of process and product innovations on productivity and productivity growth. This paper proposes a general equilibrium set up with endogenous growth driven by firms effort in innovation activities and selection and imitation. The aim is to understand the different role of process and product innovations on productivity and productivity growth. Heterogenous incumbents specialize either in process or product innovation or in both types of innovation af-fecting endogenously their technology evolution. Successful firms prosper while unsuccessful firms exit the industry and are replaced by new entrants which imitate the best incumbents.