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Working Paper
International R&D Spillovers and Asset Prices
We study the international propagation of long-run risk in the context of a general equilibrium model with endogenous growth. Innovation and international diffusion of technologies are the channels at the core of our mechanism. A calibrated version of the model matches several asset pricing and macroeconomic quantity moments, alleviating some of the puzzles highlighted in the international macro-finance literature. Our model predicts that country-pairs that share more R&D have less volatile exchange rates and more correlated stock market returns. Using data from a sample of 19 developed ...
Working Paper
The Making of an Economic Superpower―Unlocking China’s Secret of Rapid Industrialization
The rise of China is no doubt the most important event in world economic history since the Industrial Revolution. The institutional theory of development based on a dichotomy of extractive vs. inclusive political institutions cannot explain China?s rise. This article argues that only a radical reinterpretation of the history of the Industrial Revolution and the rise of the West (as incorrectly portrayed by the institutional theory) can fully explain China?s growth miracle and why the determined rise of China is unstoppable. Conversely, China?s spectacular and rapid transformation from an ...
Working Paper
“Free” Internet Content: Web 1.0, Web 2.0, and the Sources of Economic Growth
The Internet has evolved from Web 1.0, with static web pages and limited interactivity, to Web 2.0, with dynamic content that relies on user engagement. This change increased production costs significantly, but the price charged for Internet content has generally remained the same: zero. Because no transaction records the ?purchase? of this content, its value is not reflected in measured growth and productivity. To capture the contribution of the ?free? Internet, we model the provision of ?free? content as a barter transaction between the content users and the content creators, and we value ...
Working Paper
Agglomeration and innovation
Draft chapter for the forthcoming Handbook of Regional and Urban Economics, Vols. 5A and 5B This paper reviews academic research on the connections between agglomeration and innovation. The authors first describe the conceptual distinctions between invention and innovation. They then discuss how these factors are frequently measured in the data and note some resulting empirical regularities. Innovative activity tends to be more concentrated than industrial activity, and the authors discuss important findings from the literature about why this is so. The authors highlight the traits of ...
Working Paper
Valuing \\"Free\\" Media in GDP: An Experimental Approach
?Free? consumer entertainment and information from the Internet, largely supported by advertising revenues, has had a major impact on consumer behavior. Some economists believe that measured gross domestic product (GDP) growth is badly underestimated because GDP excludes online entertainment (Brynjolfsson and Oh 2012; Ito 2013; Aeppel 2015). This paper ntroduces an experimental GDP methodology that includes advertising-supported media in both final output and business inputs. For example, Google Maps would be counted as final output when it is used by a consumer to plan vacation driving ...
Working Paper
Expanded GDP for Welfare Measurement in the 21st Century
The information revolution currently underway has changed the economy in ways that are hard to measure using conventional GDP procedures. The information available to consumers has increased dramatically as a result of the Internet and its applications, and new mobile communication devices have greatly increased the speed and reach of its accessibility. An individual now has an unprecedented amount of information on which to base consumption choices, and the “free” nature of the information provided means that the resulting benefits largely bypass GDP and accrue directly to consumers. ...
Working Paper
Measuring the “Free” Digital Economy Within the GDP and Productivity Accounts
We develop an experimental methodology that values ?free? digital content through the lens of a production account and is consistent with the framework of the national accounts. We build upon the work in Nakamura, et al. (2016) by combining marketing- and advertising-supported content and find that the impact of ?free? digital content on U.S. gross domestic product (GDP) has accelerated in recent years, particularly since 2005. However, the explosion in ?free? digital content is partially offset by a decrease in ?free? print content like newspapers. Including these, real GDP growth would grow ...
Working Paper
Accounting for Growth in the Age of the Internet The Importance of Output-Saving Technical Change
We extend the conventional Solow growth accounting model to allow innovation to affect consumer welfare directly. Our model is based on Lancaster?s New Approach to Consumer Theory, in which there is a separate ?consumption technology? that transforms the produced goods, measured at production cost, into utility. This technology can shift over time, allowing consumers to make more efficient use of each dollar of income. This is ?output-saving? technical change, in contrast to the Solow TFP ?resource-saving? technical change. One implication of our model is that living standards can rise at a ...
Working Paper
Two-sided Market, R&D and Payments System Evolution
It takes many years for more efficient electronic payments to be widely used, and the fees that merchants (consumers) pay for using those services are increasing (decreasing) over time. We address these puzzles by studying payments system evolution with a dynamic model in a two-sided market setting. We calibrate the model to the U.S. payment card data, and conduct welfare and policy analysis. Our analysis shows that the market power of electronic payment networks plays important roles in explaining the slow adoption and asymmetric price changes, and the welfare impact of regulations may vary ...
Working Paper
A Tax Plan for Endogenous Innovation
In times when elevated government debt raises concerns about dimmer global growth prospects, we ask: How can the government provide incentives for innovation in a fiscally sustainable way? We address this question by examining the Ramsey problem of finding optimal tax and subsidy schemes in a model in which growth is endogenously sustained by risky innovation. We characterize the shadow value of growth and entry in the innovation sector. We find that a profit tax is required to replicate the first-best in order to balance the externalities associated with innovative activity. At the ...