Technological diversification

Koren, Miklos and Tenreyro, Silvana ORCID: 0000-0002-9816-7452 (2007) Technological diversification. . London School of Economics and Political Science. Centre for Economic Performance, London, UK.

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Abstract

Economies at early stages of development are often shaken by abrupt changes in growth rates, whereas in advanced economies growth rates tend to be relatively stable. To explain this pattern, we propose a theory of technological diversification. Production makes use of different input varieties, which are subject to imperfectly correlated shocks. Technological progress takes the form of an increase in the number of varieties, raising average productivity. In addition, the expansion in the number of varieties in our model provides diversification benefits against variety-specific shocks and it can hence lower the volatility of output growth. Technological complexity evolves endogenously in response to profit incentives. The decline in volatility thus arises as a by-product of firms’ incentives to increase profits and is hence a likely outcome of the development process. We quantitatively asses the predictions of the model in light of the empirical evidence and find that for reasonable parameter values, the model can generate a decline in volatility with the level of development comparable to that in the data.

Item Type:	Monograph (Discussion Paper)
Official URL:	http://cep.lse.ac.uk/
Additional Information:	© 2007 M. Koren and S. Tenreyro
Divisions:	Centre for Economic Performance Economics
Subjects:	T Technology > T Technology (General) H Social Sciences > HB Economic Theory
JEL classification:	O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O11 - Macroeconomic Analyses of Economic Development O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O12 - Microeconomic Analyses of Economic Development O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output (Income) Convergence O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O10 - General O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development > O30 - General
Date Deposited:	06 Mar 2008 12:19
Last Modified:	11 Dec 2024 18:50
URI:	http://eprints.lse.ac.uk/id/eprint/3741

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