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Creator: Asturias, Jose, Hur, Sewon, Kehoe, Timothy Jerome, 1953-, and Ruhl, Kim J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 544 Abstract:
Applying the Foster, Haltiwanger, and Krizan (FHK) (2001) decomposition to plant-level manufacturing data from Chile and Korea, we find that the entry and exit of plants account for a larger fraction of aggregate productivity growth during periods of fast GDP growth. Studies of other countries confirm this empirical relationship. To analyze this relationship, we develop a simple model of firm entry and exit based on Hopenhayn (1992) in which there are analytical expressions for the FHK decomposition. When we introduce reforms that reduce entry costs or reduce barriers to technology adoption into a calibrated model, we find that the entry and exit terms in the FHK decomposition become more important as GDP grows rapidly, just as they do in the data from Chile and Korea.
Palabra clave: Entry costs, Entry, Exit, Productivity, and Barriers to technology adoption Tema: O10 - Economic Development: General, E22 - Investment; Capital; Intangible Capital; Capacity, O38 - Technological Change: Government Policy, and O47 - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
Creator: Schmitz, James Andrew Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 240 Abstract:
In this paper, I estimate the impact on aggregate labor productivity of having government, rather than private industry, produce investment goods. This policy was pursued to varying degrees by Egypt, India, Turkey, among others. The policy has a large impact because there is both a direct effect (on the production function in the investment sector) and a secondary effect (on the economywide capital stock per worker). I estimate that this policy alone accounted for about one-third of Egypt's aggregate labor productivity gap with the United States during the 1960s.
Palabra clave: Aggregate productivity, Government production, and Public enterprises Tema: O11 - Macroeconomic Analyses of Economic Development, L32 - Public Enterprises; Public-Private Enterprises, E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General, and O40 - Economic Growth and Aggregate Productivity: General
Creator: Kehoe, Timothy Jerome, 1953- and Ruhl, Kim J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 453 Abstract:
Following its opening to trade and foreign investment in the mid-1980s, Mexico’s economic growth has been modest at best, particularly in comparison with that of China. Comparing these countries and reviewing the literature, we conclude that the relation between openness and growth is not a simple one. Using standard trade theory, we find that Mexico has gained from trade, and by some measures, more so than China. We sketch out a theory in which developing countries can grow faster than the United States by reforming. As a country becomes richer, this sort of catch-up becomes more difficult. Absent continuing reforms, Chinese growth is likely to slow down sharply, perhaps leaving China at a level less than Mexico’s real GDP per working-age person.
Tema: E23 - Macroeconomics: Production, F14 - Empirical Studies of Trade, E65 - Studies of Particular Policy Episodes, O20 - Development Planning and Policy: General, O47 - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence, and O10 - Economic Development: General
Creator: Gomme, Paul, 1961- Series: Economic growth and development Abstract:
Results in Lucas (1987) suggest that if public policy can affect the growth rate of the economy, the welfare implications of alternative policies will be large. In this paper, a stochastic, dynamic general equilibrium model with endogenous growth and money is examined. In this setting, inflation lowers growth through its effect on the return to work. However, the welfare costs of higher inflation are extremely modest.
Tema: E31 - Prices, business fluctuations, and cycles - Price level ; Inflation ; Deflation and O42 - Economic growth and aggregate productivity - Monetary growth models
Creator: Rossi-Hansberg, Esteban and Wright, Mark L. J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 381 Abstract:
Most economic activity occurs in cities. This creates a tension between local increasing returns, implied by the existence of cities, and aggregate constant returns, implied by balanced growth. To address this tension, we develop a general equilibrium theory of economic growth in an urban environment. In our theory, variation in the urban structure through the growth, birth, and death of cities is the margin that eliminates local increasing returns to yield constant returns to scale in the aggregate. We show that, consistent with the data, the theory produces a city size distribution that is well approximated by Zipf’s Law, but that also displays the observed systematic under-representation of both very small and very large cities. Using our model, we show that the dispersion of city sizes is consistent with the dispersion of productivity shocks found in the data.
Palabra clave: Balanced Growth, Gibrat's Law, Size Distribution of Cities, Economic Growth, Zip's Law, and Scale Effects Tema: E00 - Macroeconomics and Monetary Economics: General, R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics: General, and O40 - Economic Growth and Aggregate Productivity: General
Creator: Atkeson, Andrew and Burstein, Ariel Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 459 Abstract:
We examine the quantitative impact of policy-induced changes in innovative investment by firms on growth in aggregate productivity and output in a model that nests several of the canonical models in the literature. We isolate two statistics, the impact elasticity of aggregate productivity growth with respect to an increase in aggregate innovative investment and the degree of intertemporal knowledge spillovers in research, that play a key role in shaping the model’s predicted dynamic response of aggregate productivity, output, and welfare to a policy-induced change in the innovation intensity of the economy. Given estimates of these statistics, we find that there is only modest scope for increasing aggregate productivity and output over a 20-year horizon with uniform subsidies to firms’ investments in innovation of a reasonable magnitude, but the welfare gains from such a subsidy may be substantial.
Palabra clave: Social depreciation, Economic growth, and Innovation policies Tema: O30 - Innovation; Research and Development; Technological Change; Intellectual Property Rights: General and O40 - Economic Growth and Aggregate Productivity: General
Creator: Luttmer, Erzo G. J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 645 Abstract:
This paper presents a simple model of search and matching between consumers and firms. The firm size distribution has a Pareto-like right tail if the population of consumers grows at a positive rate and the mean rate at which incumbent firms gain customers is also positive. This happens in equilibrium when entry is sufficiently costly. As entry costs grow without bound, the size distribution approaches Zipf’s law. The slow rate at which the right tail of the size distribution decays and the 10% annual gross entry rate of new firms observed in the data suggest that more than a third of all consumers must switch from one firm to another during a given year. A substantially lower consumer switching rate can be inferred only if part of the observed firm entry rate is attributed to factors outside the model. The realized growth rates of large firms in the model are too smooth.
Tema: O40 - Economic Growth and Aggregate Productivity: General, L10 - Market Structure, Firm Strategy, and Market Performance: General, and D11 - Consumer Economics: Theory
Creator: Boldrin, Michele and Levine, David K. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 279 Abstract:
Market booms are often followed by dramatic falls. To explain this requires an asymmetry in the underlying shocks. A straightforward model of technological progress generates asymmetries that are also the source of growth cycles. Assuming a representative consumer, we show that the stock market generally rises, punctuated by occasional dramatic falls. With high risk aversion, bad news causes dramatic increases in prices. Bad news does not correspond to a contraction of existing production possibilities, but to a slowdown in their rate of expansion. This economy provides a model of endogenous growth cycles in which recoveries and recessions are dictated by the adoption of innovations.
Palabra clave: Technological Revolutions, Stock Market Value, and Growth Cycles Tema: O30 - Innovation; Research and Development; Technological Change; Intellectual Property Rights: General, G12 - Asset Pricing; Trading Volume; Bond Interest Rates, O41 - One, Two, and Multisector Growth Models, and O40 - Economic Growth and Aggregate Productivity: General
Creator: Guvenen, Fatih, Mataloni Jr., Raymond J., Rassier, Dylan G., and Ruhl, Kim J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 751 Abstract:
Official statistics display a significant slowdown in U.S. aggregate productivity growth that begins in 2004. We show how offshore profit shifting by U.S. multinational enterprises affects GDP and, thus, productivity measurement. Under international statistical guidelines, profit shifting causes part of U.S. production generated by multinationals to be excluded from official measures of U.S. production. Profit shifting has increased significantly since the mid-1990s, resulting in lower measures of U.S. aggregate productivity growth. We construct an alternative measure of value added that adjusts for profit shifting. The adjustments raise aggregate productivity growth rates by 0.09 percent annually for 1994-2004, 0.24 percent annually for 2004-2008, and lowers annual aggregate productivity growth rates by 0.09 percent after 2008. Our adjustments mitigate, but do not eliminate, the measured productivity slowdown. The adjustments are especially large in R&D-intensive industries, which most likely produce intangible assets that facilitate profit shifting. The adjustments boost value added in these industries by as much as 8 percent in the mid-2000s.
Palabra clave: Tax havens, Productivity slowdown, and Formulary apportionment Tema: O40 - Economic Growth and Aggregate Productivity: General, E01 - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts, and F23 - Multinational Firms; International Business
Creator: Luttmer, Erzo G. J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 440 Abstract:
The Pareto-like tail of the size distribution of firms can arise from random growth of productivity or stochastic accumulation of capital. If the shocks that give rise to firm growth are perfectly correlated within a firm, then the growth rates of small and large firms are equally volatile, contrary to what is found in the data. If firm growth is the result of many independent shocks within a firm, it can take hundreds of years for a few large firms to emerge. This paper describes an economy with both types of shocks that can account for the thick-tailed firm size distribution, high entry and exit rates, and the relatively young age of large firms. The economy is one in which aggregate growth is driven by the creation of new products by both new and incumbent firms. Some new firms have better ideas than others and choose to implement those ideas at a more rapid pace. Eventually, such firms slow down when the quality of their ideas reverts to the mean. As in the data, average growth rates in a cross section of firms will appear to be independent of firm size, for all but the smallest firms.
Palabra clave: Firm size distribution, Gibrat’s law, and Aggregate growth Tema: L10 - Market Structure, Firm Strategy, and Market Performance: General and O40 - Economic Growth and Aggregate Productivity: General