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Working Paper
Productivity Slowdown: Reducing the Measure of Our Ignorance
Li, Huiyu; Boppart, Timo (2021-08-22)
Growth accounting suggests that the bulk of the post-2004 slowdown in output growth in the U.S. is attributed to a residual called TFP. In this paper we provide a tractable accounting framework with firm heterogeneity to link this residual to innovations, markup dispersion, and potential measurement errors. Theories of creative destruction offer rich testable predictions of how the quality upgrading of products, the process efficiency of different firms, and markup dispersion in the market interact and therefore constitute a key approach to shed light on the slowdown in TFP growth. Surveying ...
Working Paper Series , Paper 2021-21

Report
Need for Speed: Quality of Innovations and the Allocation of Inventors
Caicedo, Santiago; Pearce, Jeremy (2024-10-01)
This paper studies how the speed-quality tradeoff in innovation interacts with firm dynamics, concentration, and economic growth. Empirically, we document long-run trends in the increasing speed of innovation alongside declining quality at large firms. Leveraging variation from an exogenous policy change, we document the existence of the speed-quality tradeoff both at the firm and aggregate level. We develop an endogenous growth model that incorporates the speed-quality tradeoff and show that allocating less labor towards speed increases growth, particularly in the presence of private ...
Staff Reports , Paper 1127

Technological Innovations and Global Trade of Services
Monge-Naranjo, Alexander; Sun, Qiuhan (2020-12-29)
Technological innovations may give the U.S. a significant advantage in the global trade of services, which could potentially help the U.S. close its trade deficit.
On the Economy

Briefing
Goodfriend Memorial Lecture: Knowledge Creation and Diffusion
Hopenhayn, Hugo A. (2023-06)
On May 11, 2023, Hugo Hopenhayn delivered the inaugural Marvin Goodfriend Memorial Lecture with a presentation of his paper "Knowledge Creation and Diffusion with Limited Appropriation," which was co-authored with Liyan Shi. The paper highlights how intellectual property rights must trade off incentives for innovation and knowledge diffusion and considers the optimal assignment of property rights as a Ramsey problem in a dynamic model where knowledge diffusion takes place under random matching. Hopenhayn is a professor of economics at UCLA, a Guggenheim Fellow and a long-term Richmond Fed ...
Richmond Fed Economic Brief , Volume 23 , Issue 18

Working Paper
Connecting to Power: Political Connections, Innovation, and Firm Dynamics
Akcigit, Ufuk; Lotti, Francesca; Baslandze, Salomé (2020-04-17)
How do political connections affect firm dynamics, innovation, and creative destruction? To answer this question, we build a firm dynamics model, where we allow firms to invest in innovation and/or political connection to advance their productivity and to overcome certain market frictions. Our model generates a number of theoretical testable predictions and highlights a new interaction between static gains and dynamic losses from rent-seeking in aggregate productivity. We test the predictions of our model using a brand-new dataset on Italian firms and their workers. Our dataset spans the ...
FRB Atlanta Working Paper , Paper 2020-5

Working Paper
The Monetization of Innovation
Warusawitharana, Missaka; Zucchi, Francesca (2022-12)
We develop a dynamic model for digital service firms, which invest in monetization to generate revenues from services provided to customers for free. Our model captures and explains why such firms often build a large customer base and become highly valued while continuing to suffer losses—traditional models would struggle to explain this pattern. Counterfactual analysis reveals that monetization uncertainty slows technological advancement by diverting resources away from innovation. We also show that regulation aimed at protecting user privacy has sizable adverse effect on firm size and the ...
Finance and Economics Discussion Series , Paper 2022-084

Speech
President's Message: Importance of Studying Innovations in Payment Technologies
Bullard, James B. (2022-04-20)
For several years, economists at the St. Louis Fed have been studying innovations in payment technologies such as cryptocurrencies and blockchain.
Speech

Working Paper
Comparative Advantage in Innovation and Production
Somale, Mariano A. (2017-05)
This paper develops a multi-country, general equilibrium, semi endogenous growth model of innovation and trade in which specialization in innovation and production are jointly determined. The distinctive element of the model is the ability of the agents to direct their research efforts to specific goods, in a context of heterogeneous innovation capabilities across countries and contemporaneous decreasing returns to R&D. The model features a two-way relationship between trade and technology absent in standard quantitative Ricardian trade models. I calibrate the model using a sample of 29 ...
International Finance Discussion Papers , Paper 1206

Journal Article
Venture capital in the Philadelphia metro area
Knudson, Jennifer (2011-10)
Many consider venture capital to be a barometer of innovation and economic growth. It is an important source of capital for startups that banks deem too risky to finance. Therefore, it would be useful to examine how the venture capital industry has fared during the recent recession. This report focuses on the Philadelphia metro area and how it compares with the nation. In particular, it highlights the fact that the area increased its share of the nation?s biotechnology deals during the recession.
Research Rap Special Report , Issue Oct

Working Paper
A Tax Plan for Endogenous Innovation
Croce, Mariano; Raymond, Stephen; Schmid, Lukas; Karantounias, Anastasios G. (2017-11-01)
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 ...
FRB Atlanta Working Paper , Paper 2017-13

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