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Creator: Holmes, Thomas J. and Schmitz, James Andrew Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 245 Abstract:
There is an old wisdom that reductions in tariffs force changes on producers that lead to costless, or nearly so, increases in productivity. We construct a technology-ladder model that captures this wisdom. As in other technology-ladder models, time spent in research helps propel an industry up a technology-ladder. In contrast to the literature, we include another activity that plays a role in determining an industry's position on the technology-ladder: attempts to obstruct the research program of rivals (through regulations, for example). In this world, reductions in tariffs between countries lead producers to spend more time in research and less in obstruction of rivals.
Mot-clé: Technology-ladder models, Effects of protection, and Gains from trade Assujettir: F10 - Trade: General, O40 - Economic Growth and Aggregate Productivity: General, and O30 - Innovation; Research and Development; Technological Change; Intellectual Property Rights: General
Creator: Parente, Stephen L. and Prescott, Edward C. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 333 Abstract:
This essay develops a theory of the evolution of international income levels. In particular, it augments the Hansen-Prescott theory of economic development with the Parente-Prescott theory of relative efficiencies and shows that the unified theory accounts for the evolution of international income levels over the last millennium. The essence of this unified theory is that a country starts to experience sustained increases in its living standard when production efficiency reaches a critical point. Countries reach this critical level of efficiency at different dates not because they have access to different stocks of knowledge, but rather because they differ in the amount of society-imposed constraints on the technology choices of their citizenry.
Mot-clé: Catch-up, Trading clubs, Capital share, Aggregate economic efficiency, and Transition to modern economic growth Assujettir: E00 - Macroeconomics and Monetary Economics: General, O19 - International Linkages to Development; Role of International Organizations, O11 - Macroeconomic Analyses of Economic Development, and F40 - Macroeconomic Aspects of International Trade and Finance: 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.
Mot-clé: Innovation policies, Economic growth, and Social depreciation Assujettir: O40 - Economic Growth and Aggregate Productivity: General and O30 - Innovation; Research and Development; Technological Change; Intellectual Property Rights: General
Creator: Smith, Bruce D. (Bruce David), 1954-2002 Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 234 Abstract:
Current approaches to monetary theory and policy owe much to the "quantity theory of money." However, recent theoretical developments suggest that the manner in which money is introduced is more important, even for price level movements, than the quantity of money. Colonial American experience provides a laboratory for discriminating between these views. It is shown here that the nature of backing, rather than the quantity of money, determined its value. Large secular inflations were ended by changing the nature of backing despite the continuance of large note issues (and despite the absence of a metallic standard). Extremely large note issues and note withdrawals are shown not to have produced inflation (currency depreciation) or deflation (currency appreciation).
Mot-clé: Fiat money, Quantity theory, Currency, and Colonial America Assujettir: N11 - Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: U.S.; Canada: Pre-1913, E52 - Monetary Policy, and E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems
Creator: Luttmer, Erzo G. J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 715 Abstract:
Randomness in individual discovery tends to spread out productivities in a population, while learning from others keeps productivities together. In combination, these two mechanisms for knowledge accumulation give rise to long-term growth and persistent income inequality. This paper considers a world in which those with more useful knowledge can teach those with less useful knowledge, with competitive markets assigning students to teachers. In equilibrium, students who are able to learn quickly are assigned to teachers with the most productive knowledge. The long-run growth rate of this economy is governed by the rate at which the fastest learners can learn. The income distribution reflects learning ability and serendipity, both in individual discovery and in the assignment of students to teachers. Because of naturally arising indeterminacies in this assignment, payoff irrelevant characteristics can be predictors of individual income growth. Ability rents can be large when fast learners are scarce, when the process of individual discovery is not too noisy, and when overhead labor costs are low.
Mot-clé: Inequality, Knowledge diffusion, and Growth Assujettir: O30 - Innovation; Research and Development; Technological Change; Intellectual Property Rights: General, L20 - Firm Objectives, Organization, and Behavior: General, and O40 - Economic Growth and Aggregate Productivity: General
Creator: Luttmer, Erzo G. J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 509 Abstract:
Randomness in individual discovery disperses productivities, whereas learning from others keeps productivities together. Long-run growth and persistent earnings inequality emerge when these two mechanisms for knowledge accumulation are combined. This paper considers an economy in which those with more useful knowledge can teach others, with competitive markets assigning students to teachers. In equilibrium, students with an ability to learn quickly are assigned to teachers with the most productive knowledge. This sorting on ability implies large differences in earnings distributions conditional on ability, as shown using explicit formulas for the tail behavior of these distributions.
Mot-clé: Knowledge diffusion, Income inequality, and Growth Assujettir: J20 - Demand and Supply of Labor: General, O30 - Innovation; Research and Development; Technological Change; Intellectual Property Rights: General, O10 - Economic Development: General, and O40 - Economic Growth and Aggregate Productivity: General
Creator: Gopinath, Gita, 1971-, Kalemli-Özcan, Şebnem, Karabarbounis, Loukas, and Villegas-Sanchez, Carolina Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 728 Abstract:
Starting in the early 1990s, countries in southern Europe experienced low productivity growth alongside declining real interest rates. We use data for manufacturing ﬁrms in Spain between 1999 and 2012 to document a signiﬁcant increase in the dispersion of the return to capital across ﬁrms, a stable dispersion of the return to labor, and a signiﬁcant increase in productivity losses from capital misallocation over time. We develop a model with size-dependent ﬁnancial frictions that is consistent with important aspects of ﬁrms’ behavior in production and balance sheet data. We illustrate how the decline in the real interest rate, often attributed to the euro convergence process, leads to a signiﬁcant decline in sectoral total factor productivity as capital inﬂows are misallocated toward ﬁrms that have higher net worth but are not necessarily more productive. We show that similar trends in dispersion and productivity losses are observed in Italy and Portugal but not in Germany, France, and Norway.
Mot-clé: Misallocation, Productivity, Dispersion, Europe, and Capital flows Assujettir: F41 - Open Economy Macroeconomics, D24 - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity, O16 - Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance, O47 - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence, and E22 - Investment; Capital; Intangible Capital; Capacity
Creator: Boyd, John H. and Smith, Bruce D. (Bruce David), 1954-2002 Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 522 Abstract:
We consider a two country growth model with international capital markets. These markets fund capital investment in both countries, and operate subject to a costly state verification (CSV) problem. Investors in each country require some external finance, but also provide internal finance, which mitigates the CSV problem. When two identical (except for their initial capital stocks) economies are closed, they necessarily converge monotonically to the same steady state output level. Unrestricted international financial trade precludes otherwise identical economies from converging, and poor countries are necessarily net lenders to rich countries. Oscillation in real activity and international capital flows can occur.
Mot-clé: CSV, Open economy, International lending, Costly state verification, Capital investment, Closed economy, Credit rationing, International capital markets, and Credit Assujettir: F34 - International Lending and Debt Problems and O16 - Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
Creator: Kehoe, Timothy Jerome, 1953- and Meza, Felipe Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 693 Abstract:
In 1950 Mexico entered an economic takeoff and grew rapidly for more than 30 years. Growth stopped during the crises of 1982–1995, despite major reforms, including liberalization of foreign trade and investment. Since then growth has been modest. We analyze the economic history of Mexico 1877–2010. We conclude that the growth 1950–1981 was driven by urbanization, industrialization, and education and that Mexico would have grown even more rapidly if trade and investment had been liberalized sooner. If Mexico is to resume rapid growth — so that it can approach U.S. levels of income — it needs further reforms.
Mot-clé: Total factor productivity, Mexico, and Economic growth Assujettir: O54 - Economywide Country Studies: Latin America; Caribbean, N16 - Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: Latin America; Caribbean, and O11 - Macroeconomic Analyses of Economic Development
Creator: Krusell, Per and Ríos-Rull, José-Víctor Series: Conference on economics and politics Abstract:
Some economic policies and regulations seem to have only one purpose: to prevent technological development and economic growth from occurring. In this paper, we attempt to rationalize such policies as outcomes of voting equilibria. In our environment, some agents will be worse off if the economy grows, since their skills are complementary to resources that can be allocated to growth-stimulating activities. In the absence of arrangements where votes are traded, we show that for some initial skill distributions, the economy may stagnate due to growth-preventing policies. Different initial skill distributions, however, lead to voting outcomes and policies in support of technological development, and to persistent economic growth. In making our argument formally, we use a dynamic model with induced heterogeneity in agents' skills. In their voting decisions, agents compare how they will be affected under each policy alternative, and then vote for the policy that maximizes their welfare.
Assujettir: O41 - One, Two, and Multisector Growth Models and O31 - Innovation and Invention: Processes and Incentives
Creator: Williamson, Stephen D. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 405 Abstract:
A model is constructed where banks provide access to a communication technology which facilitates trade. Bank liabilities may coexist with alternative means of payment in equilibrium, and there exist regions of the parameter space where banking dominates the payments system and where physical exchange media dominate. The model is consistent with some observations concerning the role of the banking system in economic development, and with characteristics of banking crises. In particular, in early stages of economic development: 1) rapid output growth is accompanied by an increasing share of banking in transactions activity and 2) there are recurrent banking "panics" where reductions in measured aggregate output coincide with increases in the use of alternative means of payment relative to bank liabilities. In later stages of development, growth slackens off, the share of banking in the payments system stabilizes and the economy is less likely to be subject to banking panics.
Mot-clé: Financial panic, Banks, Banking panics, Communication cost, and Communication technology Assujettir: G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages and O33 - Technological Change: Choices and Consequences; Diffusion Processes
Creator: Bajona, Claustre and Kehoe, Timothy Jerome, 1953- Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 377 Abstract:
We contrast the properties of dynamic Heckscher-Ohlin models with overlapping generations with those of models with infinitely lived consumers under both closed and open international capital markets. In both environments, if capital is mobile, factor price equalization occurs after the initial period. If capital is not mobile, the properties of equilibria differ drastically across environments: With infinitely lived consumers, factor prices equalize in any steady state or cycle and, in general, there is positive trade in any steady state or cycle. With overlapping generations, we construct examples with steady states and cycles in which factor prices are not equalized, and any equilibrium that converges to a steady state or a cycle with factor price equalization has no trade after a finite number of periods.
Assujettir: O15 - Economic Development: Human Resources; Human Development; Income Distribution; Migration, O41 - One, Two, and Multisector Growth Models, F11 - Neoclassical Models of Trade, and F43 - Economic Growth of Open Economies
Creator: Gertler, Mark and Rogoff, Kenneth S. Series: International perspectives on debt, growth, and business cycles Abstract:
Across developing countries, capital market inefficiencies tend to decrease and external borrowing tends to sharply increase as national wealth rises. We construct a simple model of intertemporal trade under asymmetric information which provides a coherent explanation of both these phenomenon, without appealing to imperfect capital mobility. The model can be applied to a number of policy issues in LDC lending, including the debt overhang problem, and the impact of government guarantees of private debt to foreign creditors. In the two-country general equilibrium version of the model, an increase in wealth in the rich country can induce a decline in investment in the poor country via a "siphoning effect". Finally, we present some new empirical evidence regarding the link between LDC borrowing and per capita income.
Assujettir: F43 - Economic Growth of Open Economies and O11 - Macroeconomic Analyses of Economic Development
Creator: Huggett, Mark and Ospina, Sandra Series: Productivity and the industrial revolution Abstract:
A number of theoretical models of technology adoption have been proposed that emphasize technological switching, loss of expertise and subsequent technology-specific learning. These models imply that measured productivity may initially fall and then later rise after the adoption of a new technology. This paper investigates whether or not this implication is a feature of plant-level data from the Colombian manufacturing sector. We regress measures of productivity growth at the plant level on a plant-specific measure of technology adoption and its lagged values. We find that...
Mot-clé: Embodied, Productivity, Latin America, Manufacturing, South America, Technology, and Colombia Assujettir: D24 - Production and organizations - Production ; Cost ; Capital and total factor productivity ; Capacity, L60 - Industry Studies: Manufacturing: General, O14 - Economic development - Industrialization ; Manufacturing and service industries ; Choice of technology, and O33 - Technological change ; Research and development - Technological change : Choices and consequences ; Diffusion processes
Creator: Goodfriend, Marvin and McDermott, John H. Series: Economic growth and development Abstract:
We explain how a long period of slow pre-industrial development triggers an Industrial Revolution that leads to modern balanced growth. Development in the preindustrial period is driven by increasing returns to specialization made possible by a growing population. Increasing access to specialized intermediate goods eventually makes fundamental technological innovation possible. Innovation initiates the Industrial Revolution, after which productivity grows endogenously regardless of population growth. Industrialization reconciles the crucial role of population early on with its weak relation to per capita product in developed economies. Faster population growth speeds early development, though if it results from a highly productive primitive technology, the consequences for development are ambiguous.
Mot-clé: Growth and Industrial Revolution Assujettir: O11 - Economic development - Macroeconomic analyses of economic development and N10 - Macroeconomics and monetary economics ; Growth and fluctuations - General, international, or comparative
Creator: Rivera-Batiz, Luis and Romer, Paul Michael, 1955- Series: Modeling North American economic integration Abstract:
In a world with two similar, developed economies, economic integration can cause a permanent increase in the worldwide rate of growth. Starting from a position of isolations, closer integration can be achieved by increasing trade in goods or by increasing flows of ideas. We consider two models with different specifications of the research and development sector that is the source of growth. Either form of integration can increase the long-run rate of growth if it encourages the worldwide exploitation of increasing returns to scale in the research and development sector.
Assujettir: F15 - Economic Integration, F43 - Economic Growth of Open Economies, and O41 - One, Two, and Multisector Growth Models
Creator: Bergoeing, Raphael, Hernando, Andrés, and Repetto, Andrea Series: Advances in dynamic economics Abstract:
We estimate the effects of policy distortions on aggregate productivity. Based on a model of plant production and productivity uncertainty and heterogeneity, and using Chilean manufacturing data, we focus on the effect of taxation on the exit behavior of plants. We find that taxes do distort the liquidation decisions of firms, suggesting that policy distortions reduce the extent to which factors are reallocated towards the most productive plants. Our results have important consequences for growth and development, as policies that alter the measure of plants that operate in equilibrium change the short-run response of output to exogenous shocks and the long run level of aggregate TFP. In particular, we find that the amount of productivity lost due to excessive plant shutdowns are very large.
Mot-clé: Total factor productivity, Latin America, Exit behavior of firms, South America, Taxation policy, and Chile Assujettir: H25 - Taxation, subsidies and revenue - Business taxes and subsidies and E23 - Macroeconomics : Consumption, saving, production, employment, and investment - Production
Creator: Jones, Larry E. and Manuelli, Rodolfo E. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 276 Abstract:
What determines the relationship between pollution and growth? Are the forces that explain the behavior over time of these quantities potentially useful to understand more generally the relationship between policies and growth? In this paper, we make a first attempt to analyze the equilibrium behavior of two quantities—the level of pollution and the level of income—in a setting in which societies choose, via voting, how much to regulate pollution. Our major finding is that, consistent with the evidence, the relationship between pollution and growth need not be monotone and that the precise equilibrium nature of the relationship between the two variables depends on whether individuals vote over effluent charges or directly restrict the choice of technology. Moreover, our analysis of the pollution problem suggests that, more generally, endogenous policy choices should be taken seriously as potential sources of heterogeneity when studying cross country differences in economic performance.
Assujettir: E20 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy: General (includes Measurement and Data), O20 - Development Planning and Policy: General, Q20 - Renewable Resources and Conservation: General, and O10 - Economic Development: General
Creator: Grossman, Gene M. and Helpman, Elhanan Series: International perspectives on debt, growth, and business cycles Abstract:
We construct a model of the product cycle featuring endogenous innovation and endogenous technology transfer. Competitive entrepreneurs in the North expend resources to bring out new products whenever expected present discounted value of future oligopoly profits exceeds current product development costs. Each Northern oligopolist continuously faces the risk that its product will be copied by a Southern imitator, at which time its profit stream will come to an end. In the South, competitive entrepreneurs may devote resources to learning the production processes that have been developed in the North. There too, costs (of reverse engineering) must be covered by a stream of operating profits. We study the determinants of the long-run rate of growth of the world economy, and the long-run rate of technological diffusion. We also provide an analysis of the effects of exogenous events and of public policy on relative wage rates in the two regions.
Mot-clé: Technological change, North-South trade, Long-run growth, Product cycles, Imitation, and Innovation Assujettir: F11 - Trade - Neoclassical models of trade, O33 - Technological change ; Research and development - Technological change : Choices and consequences ; Diffusion processes, and F41 - Macroeconomic aspects of international trade and finance - Open economy macroeconomics
Creator: McGrattan, Ellen R. and Schmitz, James Andrew Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 250 Abstract:
This chapter reviews the literature that tries to explain the disparity and variation of GDP per worker and GDP per capita across countries and across time. There are many potential explanations for the different patterns of development across countries, including differences in luck, raw materials, geography, preferences, and economic policies. We focus on differences in economic policies and ask to what extent can differences in policies across countries account for the observed variability in income levels and their growth rates. We review estimates for a wide range of policy variables. In many cases, the magnitude of the estimates is under debate. Estimates found by running cross-sectional growth regressions are sensitive to which variables are included as explanatory variables. Estimates found using quantitative theory depend in critical ways on values of parameters and measures of factor inputs for which there is little consensus. In this chapter, we review the ongoing debates of the literature and the progress that has been made thus far.
Mot-clé: Endogenous growth theory, Cross-country income differences, Growth accounting, and Growth regressions Assujettir: O47 - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence, E62 - Fiscal Policy, O41 - One, Two, and Multisector Growth Models, E65 - Studies of Particular Policy Episodes, and O11 - Macroeconomic Analyses of Economic Development
Creator: Boldrin, Michele and Levine, David K. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 301 Abstract:
We study a simple model of factor saving technological innovation in a concave framework. Capital can be used either to reproduce itself or, at additional cost, to produce a higher quality of capital that requires less labor input. If higher quality capital can be produced quickly, we get a model of exogenous balanced growth as a special case. If, however, higher quality capital can be produced slowly, we get a model of endogenous growth in which the growth rate of the economy and the rate of adoption of new technologies are determined by preferences, technology, and initial conditions. Moreover, in the latter case, the process of growth is necessarily uneven, exhibiting a natural cycle with alternating periods of high and low growth. Growth paths and technological innovations also exhibit dependence upon initial conditions. The model provides a step toward a theory of endogenous innovation under conditions of perfect competition.
Mot-clé: Choices and consequences, Processes and incentives, Aggregate productivity, Innovation and invention, Technological change, One, two and multisector growth models, and Measurement of economic growth Assujettir: D41 - Market Structure, Pricing, and Design: Perfect Competition, O40 - Economic Growth and Aggregate Productivity: General, D24 - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity, O30 - Innovation; Research and Development; Technological Change; Intellectual Property Rights: General, and C61 - Optimization Techniques; Programming Models; Dynamic Analysis
Creator: Greenwood, Jeremy, 1953- and Jovanovic, Boyan, 1951- Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 446 Abstract:
A paradigm is presented where both the extent of financial intermediation and the rate of economic growth are endogenously determined. Financial intermediation promotes growth because it allows a higher rate of return to be earned on capital, and growth in turn provides the means to implement costly financial structures. Thus, financial intermediation and economic growth are inextricably linked in accord with the Goldsmith-McKinnon-Shaw view on economic development. The model also generates a development cycle reminiscent of the Kuznets hypothesis. In particular, in the transition from a primitive slow-growing economy to a developed fast-growing one, a nation passes through a stage where the distribution of wealth across the rich and poor widens.
Mot-clé: Kuznets curve, Rate of return, Income gap, Income distribution, Growth rate, and Financial intermediation Assujettir: G00 - Financial Economics: General and O11 - Macroeconomic Analyses of Economic Development
Creator: Azariadis, Costas and Smith, Bruce D. (Bruce David), 1954-2002 Series: Finance, fluctuations, and development Abstract:
We study a variant of the one-sector neoclassical growth model of Diamond in which capital investment must be credit financed, and an adverse selection problem appears in loan markets. The result is that the unfettered operation of credit markets leads to a one-dimensional indeterminacy of equilibrium. Many equilibria display economic fluctuations which do not vanish asymptotically; such equilibria are characterized by transitions between a Walrasian regime in which the adverse selection problem does not matter, and a regime of credit rationing in which it does. Moreover, for some configurations of parameters, all equilibria display such transitions for two reasons. One, the banking system imposes ceilings on credit when the economy expands and floors when it contracts because the quality of public information about the applicant pool of potential borrowers is negatively correlated with the demand for credit. Two, depositors believe that returns on bank deposits will be low (or high): these beliefs lead them to transfer savings out of (into) the banking system and into less (more) productive uses. The associated disintermediation (or its opposite) causes banks to contract (expand) credit. The result is a set of equilibrium interest rates on loans that validate depositors' original beliefs. We investigate the existence of perfect foresight equilibria displaying periodic (possibly asymmetric) cycles that consist of m periods of expansion followed by n periods of contraction, and propose an algorithm that detects all such cycles.
Mot-clé: Equilibrium, Business cycles, Credit markets, and Interest rates Assujettir: E51 - Monetary policy, central banking, and the supply of money and credit - Money supply ; Credit ; Money multipliers, E32 - Prices, business fluctuations, and cycles - Business fluctuations ; Cycles, O41 - One, Two, and Multisector Growth Models, and E44 - Money and interest rates - Financial markets and the macroeconomy
Creator: Arellano, Cristina, Bai, Yan, and Zhang, Jing Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 392 Abstract:
This paper studies the impact of cross-country variation in financial market development on firms’ financing choices and growth rates using comprehensive firm-level datasets. We document that in less financially developed economies, small firms grow faster and have lower debt to asset ratios than large firms. We then develop a quantitative model where financial frictions drive firm growth and debt financing through the availability of credit and default risk. We parameterize the model to the firms’ financial structure in the data and show that financial restrictions can account for the majority of the difference in growth rates between firms of different sizes across countries.
Mot-clé: Firm investment and growth, Default risk, and Cross-country firm level dataset Assujettir: E22 - Investment; Capital; Intangible Capital; Capacity and F20 - International Factor Movements and International Business: General
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.
Mot-clé: Productivity, Exit, Barriers to technology adoption, Entry, and Entry costs Assujettir: O38 - Technological Change: Government Policy, O47 - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence, O10 - Economic Development: General, and E22 - Investment; Capital; Intangible Capital; Capacity
Creator: Bertola, Giuseppe Series: Economic growth and development Abstract:
This paper proposes a model of diversifiable uncertainty, irreversible investment decisions, and endogenous growth. The detailed microeconomic structure of the model makes it possible to study the. general equilibrium effects of obstacles to labor mobility, due to institutional as well as technological features of the economy. Labor mobility costs reduce private returns to investment, and the resulting slower rate of endogenous growth unambiguously lowers a representative individual's welfare. Turnover costs can have positive effects on full employment equilibrium wages when all external effects are disregarded: this may help explain why policy and institutions often tend to decrease labor mobility in reality, rather than to enhance it. Lower flexibility, however, reduces the growth rate of wages in endogenous growth equilibrium, with negative welfare effects even for agents who own only labor.
Assujettir: E25 - Aggregate Factor Income Distribution, E24 - Macroeconomics : Consumption, saving, production, employment, and investment - Employment ; Unemployment ; Wages ; Intergenerational income distribution ; Aggregate human capital, and O41 - One, Two, and Multisector Growth Models
Creator: Fogli, Alessandra and Veldkamp, Laura Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 572 Abstract:
Does the pattern of social connections between individuals matter for macroeconomic outcomes? If so, where do these differences come from and how large are their effects? Using network analysis tools, we explore how different social network structures affect technology diffusion and thereby a country's rate of growth. The correlation between high-diffusion networks and income is strongly positive. But when we use a model to isolate the effect of a change in social networks, the effect can be positive, negative, or zero. The reason is that networks diffuse ideas and disease. Low-diffusion networks have evolved in countries where disease is prevalent because limited connectivity protects residents from epidemics. But a low-diffusion network in a low-disease environment needlessly compromises the diffusion of good ideas. In general, social networks have evolved to fit their economic and epidemiological environment. Trying to change networks in one country to mimic those in a higher-income country may well be counterproductive.
Mot-clé: Social networks, Pathogens, Technology diffusion, Development, Disease , Economic networks, and Growth Assujettir: E02 - Institutions and the Macroeconomy, O10 - Economic Development: General, I10 - Health: General, and O33 - Technological Change: Choices and Consequences; Diffusion Processes
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.
Mot-clé: Public enterprises, Aggregate productivity, and Government production Assujettir: O40 - Economic Growth and Aggregate Productivity: General, L32 - Public Enterprises; Public-Private Enterprises, E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General, and O11 - Macroeconomic Analyses of Economic Development
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.
Mot-clé: Stock Market Value, Growth Cycles, and Technological Revolutions Assujettir: O41 - One, Two, and Multisector Growth Models, G12 - Asset Pricing; Trading Volume; Bond Interest Rates, O40 - Economic Growth and Aggregate Productivity: General, and O30 - Innovation; Research and Development; Technological Change; Intellectual Property Rights: General
Creator: Lin, Lizbie Gee-Sun Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 000 La description:
This paper was published with no issue number.
Simultaneously published as part of the Ninth District Economic Information Series.
Mot-clé: Technical colleges, Community colleges, Students, and Colleges and universities Assujettir: R11 - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes, H52 - National Government Expenditures and Education, and I22 - Educational Finance; Financial Aid
Creator: Caselli, Francesco, 1966- and Coleman, Wilbur John Series: Productivity and the industrial revolution Abstract:
The process by which per capita income in the South converged to northern levels is intimately related to the structural transformation of the U.S. economy. We find that empirically most of the southern gains are attributable to the nation-wide convergence of agricultural wages to non-agricultural wages, and the faster rate of transition of the Southern labor force from agricultural to non-agricultural jobs. Similar results describe the Mid-West's catch up to the North-East (but not the relative experience of the West). To explain these observations, we construct a model in which the South (Mid-West) has a comparative advantage in producing unskilled-labor intensive agricultural goods. Thus, it starts with a disproportionate share of the unskilled labor force and lower per capita incomes. Over time, declining education/training costs induce an increasing proportion of the labor force to move out of the (unskilled) agricultural sector and into the (skilled) non-agricultural sector. The decline in the agricultural labor force leads to an increase in relative agricultural wages. Both effects benefit the South (Mid-West) disproportionately since it has more agricultural workers. The model successfully matches the quantitative features of the U.S. structural transformation and regional convergence, as well as several other stylized facts on U.S. economic growth in the last century. The model does not rely on frictions on factor mobility, since in our empirical work we find this channel to be less important than the compositional effects the model emphasizes.
Mot-clé: Regional economies, Agricultural and non-agricultural workers, Skill acquisition, Regional convergence, and Structural transformation Assujettir: O41 - One, Two, and Multisector Growth Models, O18 - Economic development - Regional, urban, and rural analyses, and O14 - Economic development - Industrialization ; Manufacturing and service industries ; Choice of technology
Creator: Backus, David, Kehoe, Patrick J., and Kehoe, Timothy Jerome, 1953- Series: Modeling North American economic integration Abstract:
We look for the scale effects on growth predicted by some theories of trade and growth based on dynamic returns to scale at the national or industry level. The increasing returns can arise from learning by doing, investment in human capital, research and development, or development of new products. We find some evidence of a relation between growth rates and the measures of scale implied by the learning by doing theory, especially total manufacturing. With respect to human capital, there is some evidence of a relation between growth rates and per capita measures of inputs into the human capital accumulation process, but little evidence of a relation with the scale of inputs. There is also little evidence that growth rates are related to measures of inputs into R&D. We find, however, that growth rates are related to measures of intra-industry trade, particularly when we control for scale of industry.
Mot-clé: External effects, Intra-industry trade, Specialization indexes, Increasing returns to scale, Learning by doing, Research and development, Human capital, and International trade Assujettir: F43 - Economic Growth of Open Economies and O41 - One, Two, and Multisector Growth Models
Creator: Segerstrom, Paul Stephen, 1957- Series: Economic growth and development Abstract:
This paper develops a dynamic general equilibrium model of economic growth. The model has a steady state equilibrium in which some firms devote resources to discovering qualitatively improved products and other firms devote resources to copying these products. Rates of both innovation and imitation are endogenously determined based on the outcomes of R&D races between firms. Innovation subsidies are shown to unambiguously promote economic growth. Welfare is only enhanced however if the steady state intensity of innovative effort exceeds a critical level.
Assujettir: O41 - One, Two, and Multisector Growth Models and O31 - Technological change ; Research and development - Innovation and invention : Processes and incentives
Creator: Jovanovic, Boyan, 1951- and Rob, Rafael Series: Models of economic growth and development Abstract:
This paper presents a model of growth through technical progress. The nature and scope of what is learned is derived from a set of axioms, and optimal search behavior by agents is then analyzed. Agents can search intensively or extensively. Intensive search explores a technology in greater depth, while extensive search yields new technologies. Agents alternate between these two modes of search. The economy grows forever and the growth rate is bounded away from zero. The growth rate is on average higher during periods of intensive search than during periods of extensive search. Epochs of higher growth are initiated by discoveries that call for further intensive exploration. This mechanism is reminiscent of the process described by Schumpeter as causing long-wave business cycles. Serial correlation properties of output and growth stem from the presence of intensive rather than extensive search. The two key parameters are technological opportunity and the cost of the extensive search.
Assujettir: O30 - Technological change ; Research and development - General and O47 - Economic growth and aggregate productivity - Measurement of economic growth ; Aggregate productivity ; Cross-country output convergence
Creator: Hansen, Gary D. (Gary Duane) and Prescott, Edward C. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 257 Abstract:
A unified growth theory is developed that accounts for the roughly constant living standards displayed by world economies prior to 1800 as well as the growing living standards exhibited by modern industrial economies. Our theory also explains the industrial revolution, which is the transition from an era when per capita incomes are stagnant to one with sustained growth. We use a standard growth model with one good and two available technologies. The first, denoted the Malthus technology, requires land, labor, and reproducible capital as inputs. The second, denoted the Solow technology, does not require land. We show that in the early stages of development, only the Malthus technology is used, and, due to population growth, living standards are stagnant despite technological progress. Eventually, technological progress causes the Solow technology to become profitable, and both technologies are employed. In the limit, the economy behaves like a standard Solow growth model.
Assujettir: O41 - One, Two, and Multisector Growth Models and O47 - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
Creator: Goenka, Aditya and Spear, Stephen E. Series: Finance, fluctuations, and development Abstract:
This paper develops a dynamic model of general imperfect competition by embedding the Shapley-Shubik model of market games into an overlapping generations framework. Existence of an open market equilibrium where there is trading at each post is demonstrated when there are an arbitrary (finite) number of commodities in each period and an arbitrary (finite) number of consumers in each generation. The open market equilibria are fully characterized when there is a single consumption good in each period and it is shown that stationary open market equilibria exist if endowments are not Pareto optimal. Two examples are also given. The first calculates the stationary equilibrium in an economy, and the second shows that the on replicating the economy the stationary equilibria converge to the unique non-autarky stationary equilibrium in the corresponding Walrasian overlapping generations economy. Preliminary on-going work indicates the possibility of cycles and other fluctuations even in the log-linear economy.
Mot-clé: General equilibirum theory, Game theory, and Overlapping generations model Assujettir: D50 - General equilibrium and disequilibrium - General, C72 - Game theory and bargaining theory - Noncooperative games, and D91 - Intertemporal choice and growth - Intertemporal consumer choice ; Life cycle models and saving
Creator: Bullard, James and Russell, Steven Series: Finance, fluctuations, and development Abstract:
We examine the conditions under which steady states with low real interest rates—real rates substantially below the output growth rate—exist in an overlapping generations model with production, capital accumulation, a labor-leisure trade-off, technological progress, and agents who live for many periods. The number of periods in an agent's life (n) is left open for much of the analysis and determines the temporal interpretation of a time period. The qualitative properties of the model are largely invariant to different values of n. We find that two low real interest rate steady states exist for empirically plausible values of the parameters of the model. Outside liabilities such as fiat currency or unbacked government debt are valued in one of these steady states.
Mot-clé: Interest rates, Debts, Public, and General equilibrium models Assujettir: E40 - Money and interest rates - General and D51 - General equilibrium and disequilibrium - Exchange and production economies