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Productivity, Technical Change, and Public Policies

Paper Session

Saturday, Jan. 5, 2019 8:00 AM - 10:00 AM

Hilton Atlanta, 217
Hosted By: Society for Economic Dynamics
  • Chair: Stefanie Stantcheva, Harvard University

Productivity and Misallocation in General Equilibrium

Emmanuel Farhi
,
Harvard University
David Baqaee
,
London School of Economics

Abstract

We provide a general non-parametric formula for aggregating microeconomic shocks in general equilibrium economies with distortions such as taxes, markups, frictions to resource reallocation, and nominal rigidities. We show that the macroeconomic impact of a shock can be boiled down into two components: its “pure” technology effect; and its effect on allocative efficiency arising from the reallocation of resources, which can be measured via changes in factor income shares. We derive a formula showing how these two components are determined by structural microeconomic parameters such as elasticities of substitution, returns to scale, factor mobility, and network linkages. Overall, our results generalize those of Solow (1957) and Hulten (1978) to economies with distortions. As examples, we pursue some applications focusing on markup distortions. We operationalize our non-parametric results and show that improvements in allocative efficiency account for about 50% of measured TFP growth over the period 1997-2015. We implement our structural results and conclude that eliminating markups would raise TFP by about 20%, increasing the economywide cost of monopoly distortions by two orders of magnitude compared to the famous 0.1% estimate by Harberger (1954).

Dancing with the Stars: Innovation Through Interactions

Stefanie Stantcheva
,
Harvard University
Ufuk Akcigit
,
University of Chicago
Santiago Caicedo
,
University of Chicago
Ernest Miguelez
,
University of Bordeaux
Valerio Sterzi
,
University of Bordeaux

Abstract

An inventor's own knowledge is a key input in the innovation process. This knowledge can be built by interacting with and learning from others. This paper uses a new large-scale panel dataset on European inventors matched to their employers and patents. We document key empirical facts on inventors' productivity over the life cycle, inventors' research teams, and interactions with other inventors. Among others, most patents are the result of collaborative work. Interactions with better inventors are very strongly correlated with higher subsequent productivity. These facts motivate the main ingredients of our new innovation-led endogenous growth model, in which innovations are produced by heterogeneous research teams of inventors using inventor knowledge. The evolution of an inventor's knowledge is explained through the lens of a diffusion model in which inventors can learn in two ways: By interacting with others at an endogenously chosen rate; and from an external, age-dependent source that captures alternative learning channels, such as learning-by-doing. Thus, our knowledge diffusion model nests inside the innovation-based endogenous growth model. We estimate the model, which fits the data very closely, and use it to perform several policy exercises, such as quantifying the large importance of interactions for growth, studying the effects of reducing interaction costs (e.g., through IT or infrastructure), and comparing the learning and innovation processes of different countries.

Robots, Trade, and Luddism: A Sufficient Statistic Approach to Optimal Technology Regulation

Ivan Werning
,
Massachusetts Institute of Technology
Arnaud Costinot
,
Massachusetts Institute of Technology

Abstract

Technological change, from the advent of robots to expanded trade opportunities, tends to create winners and losers. How should government policy respond? And how should the overall welfare impact of technological change on society be valued? We provide a general theory of optimal technology regulation in a second best world, with rich heterogeneity across households, linear taxes on the subset of firms affected by technological change, and a nonlinear tax on labor income. Our first results consist of three optimal tax formulas, with minimal structural assumptions, involving sufficient statistics that can be implemented using evidence on the distributional impact of new technologies, such as robots and trade. Our second result is a comparative static exercise illustrating that while distributional concerns create a rationale for non-zero taxes on robots and trade, the magnitude of these taxes may decrease as the process of automation and globalization deepens and inequality increases. Our final result shows that, despite limited tax instruments, technological progress is always welcome and valued in the same way as in a first best world.

From Imitation to Innovation: Where Is All That Chinese R&D Going?

Fabrizio Zilibotti
,
Yale University
Michael Koenig
,
University of Zurich
Kjetil Storesletten
,
University of Oslo
Zheng Song
,
University of Hong Kong

Abstract

We construct a dynamic model where firms are heterogeneous in productivity and are subject to distortions. The productivity distribution evolves endogenously as the result of the decisions of individual firms that seek to upgrade over time their productivity. Firms can adopt two strategy to improve their productivity: imitation and innovation. The theory bears predictions about the behavior of firms and the aggregate equilibrium. We perform the structural estimation of the stationary state of the dynamic model using a Simulated Method of Moments approach which targets moments of the empirical distribution of R&D and productivity growth. We estimate the model using data from Taiwan and mainland China. The estimation highlights some interesting findings. The model predictions align well with the data, and the estimated model also yields a
good quantitative fit to the data. There are some important differences between Taiwan and China. R&D investments are significantly less productive in China. The evidence is consistent with a significant
JEL Classifications
  • O3 - Innovation; Research and Development; Technological Change; Intellectual Property Rights
  • O4 - Economic Growth and Aggregate Productivity