Technological expansion and thefuture of (US) growth

Akshay Shanker

November 18, 2014

Big questions

I Productivity growth slowed before GFC (J.Fernald, 2014)

I Permanent or cyclical reasons?

I Future of growth?

Stagnation from technological expansion

Main idea

I Growth means exploring new tech.

I R&D workers spread more thinly accross moredifferent technologies

I Growth slows without growth in human capital

Road map

I Review growth theory

I Theoretical overview of model

I Simulations, policy

TFP growth

Growth in R

Endogenous growth theory

Production

I Measure of varieties

Y =

N∫0

A (i) di = NA

I Product quality

Endogenous growth theory

Production

I Measure of varieties

Y =

N∫0

A (i) di = NA

I Product quality

Endogenous growth theory 1

Romer (1990), Aghion and Howitt (1992)

I Standing on shoulders

•N = N R

I Research effort (nerds)

I gY = R but R is growing in data

Endogenous growth theory 1

Romer (1990), Aghion and Howitt (1992)

I Standing on shoulders

•N = N R

I Research effort (nerds)

I gY = R but R is growing in data

Endogenous growth theory 1

Romer (1990), Aghion and Howitt (1992)

I Standing on shoulders

•N = N R

I Research effort (nerds)

I gY = R but R is growing in data

Endogenous growth theory 2

I Aghion and Howitt (1999)/ neo-schumpeterian

•A = A

RN

=RL

I Expansion of sectors (N ∝ L)

I gY =RL

butRL

is growing

Endogenous growth theory 2

I Aghion and Howitt (1999)/ neo-schumpeterian

•A = A

RN

=RL

I Expansion of sectors (N ∝ L)

I gY =RL

butRL

is growing

Endogenous growth theory 3

I Jones (1995)/ semi-endogenous growth

•N = NφR φ ∈ (0, 1)

I gY = gR but 90s IT boom?

I interpretation of φ < 1? (Madsen, 2006)

Endogenous growth theory 3

I Jones (1995)/ semi-endogenous growth

•N = NφR φ ∈ (0, 1)

I gY = gR but 90s IT boom?

I interpretation of φ < 1? (Madsen, 2006)

Technological differentiation

Technologies not the same

Y =∫ N

0(δ (i) A (i))

σ−1σ di

σσ−1

I Each sector•

A (i) = R (i) A (i)

Technological differenentionsh

are

infi

nal

goo

d

X X X

Wheat IT Medical devices

Technological differenentionsh

are

infi

nal

goo

d

X X X

Wheat IT Medical devices

Technological differenentionsh

are

infi

nal

goo

d

X X X

Wheat IT Medical devices

Technological differenentionsh

are

infi

nal

goo

d

X X X

Wheat IT Medical devices

Technological differenentionsh

are

infi

nal

goo

d

X X X

Wheat IT Medical devices

Technological differenentionsh

are

infi

nal

goo

d

X X X

Wheat IT Medical devices

Technological differenentionsh

are

infi

nal

goo

d

X X X

Wheat IT Medical devices

Equilibrium

I Profitability to do R&D and enter market

depends on marginal product Y (a)1σ a (i)

−1σ

I General equilibrium– research goes to the mostprofitable sectors first

I Researchers go to work in other sectors asprofitability goes up (not L growth)

Simulation

Summary

I Stagnation but not becuase we are running outof things to discover

Policy implications

I Growth possible

I Increase research intensity

I Fertility, labour force participation

I Change the direction of tech. change to highgrowth sectors

Caveat

I Environment, social-political-institutional, trade,dodgy banks all matter

I Issues: spillovers, parameterisation, no closedform equations

I Sector size inequality

..the future of growth