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The Global Diffusion of Ideas and Its Impact on Productivity and Growth
Economic growth often comes hand in hand with the growth of trade. However, according to quantitative models that rely on standard static mechanisms, the gains from trade are fairly small. This article introduces a model to study the diffusion of ideas across countries as a means of increasing productivity and provides a quantitative assessment of the role of trade in the transmission of knowledge.
Working Paper
Liquidity Traps and Monetary Policy: Managing a Credit Crunch
We study a model with heterogeneous producers that face collateral and cash in advance constraints. These two frictions give rise to a non-trivial financial market in a monetary economy. A tightening of the collateral constraint results in a credit-crunch generated recession. The model can suitable be used to study the effects on the main macroeconomic variables - and on welfare of each individual - of alternative monetary - and fiscal - policies following the credit crunch. The model reproduces several features of the recent financial crisis, like the persistent negative real interest rates, ...
Working Paper
The Global Diffusion of Ideas
We provide a tractable theory of innovation and technology diffusion to explore the role of international trade in the process of development. We model innovation and diffusion as a process involving the combination of new ideas with insights from other industries or countries. We provide conditions under which each country's equilibrium frontier of knowledge converges to a Frechet distribution, and derive a system of differential equations describing the evolution of the scale parameters of these distributions, i.e., countries' stocks of knowledge. In particular, the growth of a country's ...
Working Paper
Scale and the origins of structural change
Structural change involves a broad set of trends: (i) sectoral reallocations, (ii) rich movements of productive activities between home and market, and (iii) an increase in the scale of productive units. After extending these facts, we develop a model to explain them within a unified framework. The crucial distinction between manufacturing, services, and home production is the scale of the productive unit. Scale technologies give rise to industrialization and the marketization of previously home produced activities. The rise of mass consumption leads to an expansion of manufacturing, but a ...
Working Paper
The Stable Transformation Path
Standard dynamic models of structural transformation, without knife-edge and counterfactual parameter values, preclude balanced growth path (BGP) analysis. This paper develops a dynamic equilibrium concept for a more general class of models | an alternative to a BGP, which we coin a Stable Transformation Path (STraP). The STraP characterizes the medium-term dynamics of the economy in a turnpike sense; it is the path toward which the economy (quickly) converges from an arbitrary initial capital stock. Calibrated simulations demonstrate that the relaxed parameter values that the STraP allows ...
Journal Article
The Rule of Law, Firm Size, and Family Firms
Countries with a weaker rule of law tend to have more family-run firms, which tend to be small and grow slowly.
Journal Article
Taking Stock of the Evidence on Microfinancial Interventions
We review the empirical evidence on microfinance and asset grants to the ultra poor or microentrepreneurs and use quantitative economic theory to account for this evidence. Properly executed, these interventions can help segments of the population increase their income and consumption, but neither literature gives much reason to believe that such interventions can lead to wide-scale, transformative impacts akin to escaping aggregate poverty traps.
Working Paper
The macroeconomics of microfinance
We provide a quantitative evaluation of the aggregate and distributional impact of microfinance or credit programs targeted toward small businesses. We find that the redistributive impact of microfinance is stronger in general equilibrium than in partial equilibrium, but the impact on aggregate output and capital is smaller in general equilibrium. Aggregate total factor productivity (TFP) increases with microfinance in general equilibrium but decreases in partial equilibrium. When general equilibrium effects are accounted for, scaling up the microfinance program will have only a small impact ...
Journal Article
Macro-Development: Complementarities, Distortions and Policies