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Working Paper
World Productivity: 1996 - 2014
We account for the sources of world productivity growth, using data for more than 36 industries and 40 major economies from 1996 to 2014, explicitly taking into account changes in the misallocation of resources in labor, capital, and product markets. Productivity growth in advanced economies slowed but emerging markets grew more quickly which kept global productivity growth relatively constant until around 2010. After that, productivity growth in all major regions slowed. Much of the volatility in world productivity growth reflects shifts in the misallocation of labor across countries and ...
Working Paper
Argentina’s “Missing Capital” Puzzle and Limited Commitment Constraints
Capital accumulation in Argentina was slow in the 1990s, despite high total factor productivity (TFP) growth and low international interest rates. A possible explanation for the ?missing capital? is that foreign investors were reluctant to take advantage of the high returns to investment seemingly offered by that small open economy under such favorable conditions, on the grounds that previous historical developments had led them to perceive Argentina as a country prone to external debt ?opportunistic defaults.? The paper examines this conjecture from the perspective of an optimal contract ...
Report
The dual nature of trade: measuring its impact on imitation and growth
Imports of goods that embody foreign technology raise a country's output directly as inputs into production and indirectly through reverse-engineering of these goods, which contributes to domestic imitation and innovation. This paper first quantifies spillovers from high-technology imports from developed countries to domestic imitation and innovation in both developed and developing countries. It then considers the contribution of foreign and domestic innovation to real per capita GDP growth. ; International patent data for forty countries from 1970 to 1985 are used to create proxies for ...
Working Paper
Innovation and Trade Policy in a Globalized World
How do import tariffs and R&D subsidies help domestic firms compete globally? How do these policies affect aggregate growth and economic welfare? To answer these questions, we build a dynamic general equilibrium growth model where firm innovation endogenously determines the dynamics of technology, market leadership, and trade flows, in a world with two large open economies at different stages of development. Firms? R&D decisions are driven by (i) the defensive innovation motive, (ii) the expansionary innovation motive, and (iii) technology spillovers. The theoretical investigation illustrates ...
Working Paper
Markets, Externalities, and the Dynamic Gains of Openness
Inflows of foreign knowledge are the key for developing countries to catch up with the world technology frontier. In this paper, I construct a simple tractable model to analyze (a) the incentives of foreign firms to bring their know-how to a developing country and (b) the incentives of domestic firms to invest in their own know-how, given the exposure to foreign ideas and competition. The model embeds two diffusion mechanisms typically considered separately in the literature: externalities and markets. The dynamic gains of openness can be substantial under either mechanism, but their relative ...
Working Paper
Exchange rates dynamics with long-run risk and recursive preferences
Standard macro models cannot explain why real exchange rates are volatile and disconnected from macro aggregates. Recent research argues that models with persistent growth rate shocks and recursive preferences can solve that puzzle. I show that this result is highly sensitive to the structure of financial markets. When just a bond is traded internationally, then long-run risk generates insufficient exchange rate volatility. A long-run risk model with recursive-preferences can generate realistic exchange rate volatility, if all agents efficiently share their consumption risk by trading in ...
Working Paper
Exchange Rates and Endogenous Productivity
Real exchange rates (RERs) display sizable uctuations not only over the business cycle, but also at lower frequencies, resulting in large and persistent swings over decades|facts that many business cycle models struggle to match. We propose an international macroeconomics model with endogenous productivity to rationalize these facts. In the model, endogenous growth amplifies stationary uctuations generating persistent productivity differences between countries that trigger low-frequency cycles in the RER. The estimated model effortlessly replicates the empirical spectrum, autocorrelation, and ...
Working Paper
The quantitative role of capital-goods imports in U.S. growth
Over the last 40 years, an increasing share of U.S. aggregate E&S investment expenditure has been allocated to capital-goods imports. While capital-goods imports were only 3.5 percent of E&S investment in 1967, by 2008 their share had risen tenfold to 36 percent. The goal of this paper is to measure the contribution of capital-goods imports to growth in U.S. output per hour using a simple growth accounting exercise. We find that capital-goods imports have contributed 20 to 30 percent to growth in U.S. output per hour between 1967 and 2008. More importantly, we find that capital-goods imports ...
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
Trade Integration, Global Value Chains, and Capital Accumulation
Motivated by increasing trade and fragmentation of production across countries since World War II, we build a dynamic two-country model featuring sequential, multi-stage production and capital accumulation. As trade costs decline over time, global-value-chain (GVC) trade expands across countries, particularly more in the faster growing country, consistent with the empirical pattern. The presence of GVC trade boosts capital accumulation and economic growth and magnifies dynamic gains from trade. At the same time, endogenous capital accumulation shapes comparative advantage across countries, ...