Embracing the Future or Building on the Past? Growth with New and Old Technologies [SSRN link]

Is growth driven by the emergence of new paradigms or mostly through the perfection of existing technologies? And is the allocation of research effort between emerging technologies versus established ones efficient? To study these questions, I propose a new semi-endogenous growth model that incorporates technology vintages and the endogenous evolution of multiple technological paradigms through directed innovation. Despite the fact that technologies continuously emerge, making the state space unbounded, the model is remarkably tractable, allowing me to provide a comprehensive characterization of both the balanced growth equilibrium and the transitional dynamics. From a positive perspective, the model can rationalize two distinct empirical patterns of innovation over time and across technologies. Using two centuries of U.S. patent data, I first document that the age profile of patents has a pronounced hump-shape: the majority of contemporary patents are built upon technologies that are between 50 and 100 years old. Second, this age profile has remained remarkably stable throughout the past century. From a normative standpoint, my theory highlights a fundamental inefficiency: profit-maximizing firms overinvest in developing mature technologies and fail to prioritize emerging techniques near the technological frontier. An estimated version of my model implies that transitioning from a laissez-faire equilibrium to the efficient allocation would increase economic growth from 2% to 2.18% over the course of a century. These results provide a rationale for public policy to support investments in cutting-edge technologies, such as quantum computing or metabolic engineering.

Spatial Consequences of Corruption: Entry and Location Decisions of Firms (with Alvaro Cox)

In many developing countries, corruption is a pervasive phenomenon, widespread across districts and local officials. This paper studies the impact of corruption on the spatial distribution of economic activity and its dynamic effects on local and aggregate growth. Our investigation focuses on a federal policy in Brazil that randomly selected local governments for audits on the use of public funds received through transfers. While evidence suggests this program effectively reduced corruption and enhanced political accountability, its implications for firms remain less understood. For example, diminishing corruption could optimize the allocation of procurement contracts by prioritizing efficiency over political connections, fostering competition. Building upon Colonnelli and Prem (2022), we use a difference-in-differences analysis to reveal the positive impact of corruption reduction on local economic activity. As all eligible municipalities were aware of the policy, this approach captures the relative effects of audits on firm outcomes. To discern the policy's aggregate effects, we develop a spatial model wherein firms' entry decisions and choice of production locations are endogenously determined. Variations in corruption levels influence relative productivity and potentially lead to misallocation. In our model, audited municipalities witness a more significant decrease in corruption, creating favorable conditions for business initiation. We derive equations from the model that directly correspond to the empirical difference-in-differences coefficient. This relationship between the model's structural parameters and empirical findings enables us to estimate the upper and lower bounds of the policy's aggregate impact.

International Macroeconomic Vulnerability (with Márcio Garcia, Diogo Guillén, and João Velloso)

Journal of International Money and Finance, Revise & Resubmit, 2023

Insper Working Paper (2022), PUC-Rio Working Paper n. 691 (2022)

We propose and implement an index of macroeconomic vulnerability to foreign shocks based on a structural time-varying Bayesian VAR with a block-exogeneity hypothesis for a given pair of a large economy and a small open economy. The index is based on the sum of the responses of the small open economy to shocks in the large economy over time, thus allowing us to disentangle and measure the source of the shock, impact variables and duration of impact. Among the many results that our index unveils, we highlight that we do not find that output shocks in the US have a different impact in other countries during periods of crises and we also find that there is a growing decouple between EM and DM on how domestic inflation is affected by US output shocks. Our approach can also be used to elucidate previously unanswered channels or unmeasured theoretical mechanisms. Using a sample of developed and developing countries, we find that global banks do not increase the macroeconomic vulnerability of a country.

Directed Technical Change and Technology Diffusion 

This paper extends existing models of Directed Technological Change (DTC) by integrating insights from the technology diffusion literature to investigate the dynamics of technology replacement and coexistence. Unlike conventional DTC models rooted in the works of Acemoglu and Zilibotti (2001) and Acemoglu (1998, 2002), the proposed framework accounts for scenarios where emerging technologies progressively supplant their predecessors following an S-shaped adoption curve. I show that if ideas get harder to find within a technology, the model may not exhibit path dependence, as predicted by standard DTC models. Leveraging the text from patents spanning nearly two centuries, I build a novel dataset that tracks innovation flows for a set of critical technologies related to sectors such as communication, transportation, and energy. I calibrate the model to the steelmaking industry in 1890-1935. I find that the declining technology during the time, the Bessemer process, was responsible for 15% of the total productivity growth.

The Geography of Technology Vintages (with Weiliang Tan)