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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 ...
Working Paper
Patents to Products: Product Innovation and Firm Dynamics
We study the relationship between patents and actual product innovation in the market, and how this relationship varies with firms’ market share. We use textual analysis to create a new data set that links patents to products of firms in the consumer goods sector. We find that patent filings are positively associated with subsequent product innovation by firms, but at least half of product innovation and growth comes from firms that never patent. We also find that market leaders use patents differently from followers. Market leaders have lower product innovation rates, though they rely on ...
Working Paper
Barriers to Creative Destruction: Large Firms and Nonproductive Strategies
This working paper reviews recent empirical evidence on large firms and nonproductivestrategies that hinder creative destruction and reallocation. The focus is on three types ofnonproductive strategies: political connections, nonproductive patenting, and anticompetitiveacquisitions. Across different contexts using granular micro data sets, we overwhelmingly see that asfirms gain market share, they increasingly rely on nonproductive strategies but reduce theirproductive, innovation-based strategies. I also discuss theoretical channels, aggregate implications,and potentials for some policies.
Working Paper
Foundational Processes and Growth
This paper studies the interaction between process and product innovations and their distinct role in firm growth dynamics. We differentiate empirically and theoretically two types of process innovations: foundational processes that advance production technology and cost-reducing processes that enhance existing production efficiency. We develop an innovation model of product varieties with quality heterogeneity to illustrate how these innovations affect firm growth differently and highlight how process innovation induces product innovation. By analyzing millions of patent texts from 1900 to ...
Working Paper
What Is the Equity-Efficiency Tradeoff when Maintaining Wells in Rural Haiti?
This paper quantitatively compares water infrastructure interventions that prioritize equity with those that prioritize efficiency. The community-based model developed by Haiti Outreach (HO) trains communities to operate and maintain wells, and has clear effi ciency gains over the status quo aid model in Haiti that gives communities wells: HO?s wells were 8.7 percentage points more likely to be functioning after one year than similarly-constructed wells managed under the status quo model. Because HO?s model includes user fees, which raise concerns about equity, I quantify the ...
Working Paper
Embodying Embodiment in a Structural, Macroeconomic Input-Output Model
This paper describes an attempt to build a regression-based system of labor productivity equations that incorporate the effects of capital-embodied technological change into IDLIFT, a structural, macroeconomic input-output model of the U.S. economy. Builders of regression-based forecasting models have long had difficulty finding labor productivity equations that exhibit the Neoclassical or Solowian property that movements in investment should cause accompanying movements in labor productivity. Theory dictates that this causation is driven by the effect of traditional capital deepening as well ...
Working Paper
Quantifying Embodied Technological Change
We estimate the rate of embodied technological change directly from plant-level manufacturing data on current output and input choices along with histories on their vintages of equipment investment. Our estimates range between 8 and 17 percent for the typical U.S. manufacturing plant during the years 1972-1996. Any number in this range is substantially larger than is conventionally accepted with some important implications. First, the role of investment-specific technological change as an engine of growth is even larger than previously estimated. Second, existing producer durable price ...
Working Paper
R&D Subsidy and Import Substitution: Growing in the Shadow of Protection
I study the effect of an innovation subsidy on the growth of firms in a developing country. Using administrative microdata for Brazil and difference-in-differences, I find that innovation subsidies drive firm growth by facilitating firm entry into high-tariff markets with domestically produced versions of foreign goods. After receiving an innovation subsidy, firms issue more patents, expand their workforce, and diversify their product line. However, these patents receive minimal citations, while also heavily citing foreign patents. Firms increase imports of foreign inputs and expand their ...
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
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 ...