IDEAS home Printed from https://ideas.repec.org/a/aea/aecrev/v103y2013i1p378-414.html
   My bibliography  Save this article

Technological Diversification

Author

Listed:
  • Miklós Koren
  • Silvana Tenreyro

Abstract

Economies at early stages of development are frequently shaken by large changes in growth rates, whereas advanced economies tend to experience relatively stable growth rates. To explain this pattern, we propose a model of technological diversification. Production makes use of input-varieties that are subject to imperfectly correlated shocks. Endogenous variety adoption by firms raises average productivity and provides diversification benefits against variety-specific shocks. Firm-level and aggregate volatility thus decline as a by-product of the development process. We quantitatively assess the model's predictions and find that it can generate patterns of volatility and development consistent with the data. (JEL D21, D24, E23, O33, O47)

Suggested Citation

  • Miklós Koren & Silvana Tenreyro, 2013. "Technological Diversification," American Economic Review, American Economic Association, vol. 103(1), pages 378-414, February.
  • Handle: RePEc:aea:aecrev:v:103:y:2013:i:1:p:378-414
    Note: DOI: 10.1257/aer.103.1.378
    as

    Download full text from publisher

    File URL: https://www.aeaweb.org/articles?id=10.1257/aer.103.1.378
    Download Restriction: no

    File URL: https://www.aeaweb.org/aer/data/feb2013/20091279_data.zip
    Download Restriction: no

    File URL: https://www.aeaweb.org/aer/data/feb2013/20091279_app.pdf
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2007. "Firms in International Trade," Journal of Economic Perspectives, American Economic Association, vol. 21(3), pages 105-130, Summer.
    2. Obstfeld, Maurice, 1994. "Risk-Taking, Global Diversification, and Growth," American Economic Review, American Economic Association, vol. 84(5), pages 1310-1329, December.
    3. Francesco Caselli & Miklós Koren & Milan Lisicky & Silvana Tenreyro, 2020. "Diversification Through Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(1), pages 449-502.
    4. Alejandro Cuñat & Marc J. Melitz, 2012. "Volatility, Labor Market Flexibility, And The Pattern Of Comparative Advantage," Journal of the European Economic Association, European Economic Association, vol. 10(2), pages 225-254, April.
    5. Ramey, Garey & Ramey, Valerie A, 1995. "Cross-Country Evidence on the Link between Volatility and Growth," American Economic Review, American Economic Association, vol. 85(5), pages 1138-1151, December.
    6. Juan C. Botero & Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2004. "The Regulation of Labor," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(4), pages 1339-1382.
    7. Caselli, Francesco & Wilson, Daniel J., 2004. "Importing technology," Journal of Monetary Economics, Elsevier, vol. 51(1), pages 1-32, January.
    8. Miklós Koren & Silvana Tenreyro, 2007. "Volatility and Development," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(1), pages 243-287.
    9. Jordi Gali & Mark J. Gertler, 2007. "Introduction to "International Dimensions of Monetary Policy"," NBER Chapters, in: International Dimensions of Monetary Policy, pages 1-10, National Bureau of Economic Research, Inc.
    10. Francesco Caselli & James Feyrer, 2007. "The Marginal Product of Capital," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(2), pages 535-568.
    11. Tor Jakob Klette & Samuel Kortum, 2004. "Innovating Firms and Aggregate Innovation," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 986-1018, October.
    12. Aart Kraay & Jaume Ventura, 2007. "Comparative Advantage and the Cross-section of Business Cycles," Journal of the European Economic Association, MIT Press, vol. 5(6), pages 1300-1333, December.
    13. Andrea Prencipe, 2001. "Exploiting And Nurturing In-House Technological Capabilities: Lessons From The Aerospace Industry," International Journal of Innovation Management (ijim), World Scientific Publishing Co. Pte. Ltd., vol. 5(03), pages 299-321.
    14. Francesco Caselli & Wilbur John Coleman, 2001. "Cross-Country Technology Diffusion: The Case of Computers," American Economic Review, American Economic Association, vol. 91(2), pages 328-335, May.
    15. Edward L. Glaeser & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2004. "Do Institutions Cause Growth?," Journal of Economic Growth, Springer, vol. 9(3), pages 271-303, September.
    16. Ross Levine, 1990. "Financial structure and economic development," International Finance Discussion Papers 381, Board of Governors of the Federal Reserve System (U.S.).
    17. Diego A. Comin & Thomas Philippon, 2006. "The Rise in Firm-Level Volatility: Causes and Consequences," NBER Chapters, in: NBER Macroeconomics Annual 2005, Volume 20, pages 167-228, National Bureau of Economic Research, Inc.
    18. Gambardella, Alfonso & Torrisi, Salvatore, 1998. "Does technological convergence imply convergence in markets? Evidence from the electronics industry," Research Policy, Elsevier, vol. 27(5), pages 445-463, September.
    19. Greenwood, Jeremy & Jovanovic, Boyan, 1990. "Financial Development, Growth, and the Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1076-1107, October.
    20. Acemoglu, Daron & Johnson, Simon & Robinson, James & Thaicharoen, Yunyong, 2003. "Institutional causes, macroeconomic symptoms: volatility, crises and growth," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 49-123, January.
    21. Beltramo, Mark A., 1989. "Modelling fuel-switching between natural gas and fuel oil in US manufacturing," Energy Economics, Elsevier, vol. 11(1), pages 70-78, January.
    22. Ben Bernanke & Mark Gertler, 1990. "Financial Fragility and Economic Performance," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(1), pages 87-114.
    23. Henry Overman & Patricia Rice & Anthony Venables, 2010. "Economic Linkages across Space," Regional Studies, Taylor & Francis Journals, vol. 44(1), pages 17-33.
    24. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 71-102, October.
    25. Acemoglu, Daron & Zilibotti, Fabrizio, 1997. "Was Prometheus Unbound by Chance? Risk, Diversification, and Growth," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 709-751, August.
    26. Saint-Paul, Gilles, 1992. "Technological choice, financial markets and economic development," European Economic Review, Elsevier, vol. 36(4), pages 763-781, May.
    27. Paola Giuri & John Hagedoorn & Myriam Mariani, 2002. "Technological Diversification and Strategic Alliances," LEM Papers Series 2002/04, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    28. Comin, D. & Hobijn, B., 2004. "Cross-country technology adoption: making the theories face the facts," Journal of Monetary Economics, Elsevier, vol. 51(1), pages 39-83, January.
    29. Stephen Hymer & Peter Pashigian, 1962. "Firm Size and Rate of Growth," Journal of Political Economy, University of Chicago Press, vol. 70(6), pages 556-556.
    30. Olivier J. Blanchard & Jordi Galí, 2007. "The Macroeconomic Effects of Oil Price Shocks: Why Are the 2000s so Different from the 1970s?," NBER Chapters, in: International Dimensions of Monetary Policy, pages 373-421, National Bureau of Economic Research, Inc.
    31. Neil Rankin & Måns Söderbom & Francis Teal, 2006. "Exporting from Manufacturing Firms in Sub-Saharan Africa," Journal of African Economies, Centre for the Study of African Economies, vol. 15(4), pages 671-687, December.
    32. Jens Fr¯slev Christensen, 2002. "Corporate strategy and the management of innovation and technology," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 11(2), pages 263-288.
    33. Granstrand, Ove & Sjolander, Soren, 1990. "Managing innovation in multi-technology corporations," Research Policy, Elsevier, vol. 19(1), pages 35-60, February.
    34. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
    35. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ferraro, Domenico, 2017. "Volatility and slow technology diffusion," European Economic Review, Elsevier, vol. 96(C), pages 18-37.
    2. Miklós Koren & Silvana Tenreyro, 2007. "Volatility and Development," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(1), pages 243-287.
    3. Miklos Koren & Silvana Tenreyro, 2003. "Diversification and development," Working Papers 03-3, Federal Reserve Bank of Boston.
    4. Sam Hak Kan Tang, 2018. "Does Scientific And Technical Research Reduce Macroeconomic Volatility?," Bulletin of Economic Research, Wiley Blackwell, vol. 70(1), pages 68-88, January.
    5. Toseef Azid & Naeem Khali & Toseef Muhammad Jamil, 2006. "Sectoral Volatility, Development, and Governance: A Case Study of Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 45(4), pages 797-817.
    6. Rodolfo Cermeño & María José Roa, 2013. "Desarrollo financiero, crecimiento y volatidad: Revisión de la literatura reciente," Documentos de Investigación - Research Papers 9, CEMLA.
    7. Xue, Wen-Jun, 2020. "Financial sector development and growth volatility: An international study," International Review of Economics & Finance, Elsevier, vol. 70(C), pages 67-88.
    8. Bertola, Giuseppe, 2000. "Macroeconomics of distribution and growth," Handbook of Income Distribution, in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 9, pages 477-540, Elsevier.
    9. Justin Yifu Lin & Fan Zhang, 2015. "Sustaining Growth of the People's Republic of China," Asian Development Review, MIT Press, vol. 32(1), pages 31-48, March.
    10. claudio Michelacci & Fabiano Schivardi, 2008. "Does Idiosyncratic Business Risk Matter?," EIEF Working Papers Series 0813, Einaudi Institute for Economics and Finance (EIEF), revised Jul 2008.
    11. Mallick, Debdulal, 2014. "Financial Development, Shocks, And Growth Volatility," Macroeconomic Dynamics, Cambridge University Press, vol. 18(3), pages 651-688, April.
    12. M Ayhan Kose & Eswar Prasad & Kenneth Rogoff & Shang-Jin Wei, 2009. "Financial Globalization: A Reappraisal," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 8-62, April.
    13. Levon Barseghyan & Riccardo DiCecio, 2008. "Institutional causes of macroeconomic volatility," Working Papers 2008-021, Federal Reserve Bank of St. Louis.
    14. Aghion, Philippe & Angeletos, George-Marios & Banerjee, Abhijit & Manova, Kalina, 2010. "Volatility and growth: Credit constraints and the composition of investment," Journal of Monetary Economics, Elsevier, vol. 57(3), pages 246-265, April.
    15. Huang, Ho-Chuan (River) & Fang, WenShwo & Miller, Stephen M., 2014. "Does financial development volatility affect industrial growth volatility?," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 307-320.
    16. Jaimovich, Esteban, 2011. "Sectoral differentiation, allocation of talent, and financial development," Journal of Development Economics, Elsevier, vol. 96(1), pages 47-60, September.
    17. Malik, Adeel & Temple, Jonathan R.W., 2009. "The geography of output volatility," Journal of Development Economics, Elsevier, vol. 90(2), pages 163-178, November.
    18. Florian Pelgrin, 2004. "Contraintes de liquidité et capital humain dans une petite économie ouverte," Staff Working Papers 04-13, Bank of Canada.
    19. Kalemli-Ozcan, Sebnem & Sørensen, Bent E & Yosha, Oved, 2004. "Asymmetric Shocks and Risk Sharing in a Monetary Union: Updated Evidence and Policy Implications for Europe," CEPR Discussion Papers 4463, C.E.P.R. Discussion Papers.
    20. de la Fuente, Angel & Marin, JoseMaria, 1996. "Innovation, bank monitoring, and endogenous financial development," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 269-301, October.

    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

    Lists

    This item is featured on the following reading lists, Wikipedia, or ReplicationWiki pages:
    1. Technological Diversification (AER 2013) in ReplicationWiki

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aecrev:v:103:y:2013:i:1:p:378-414. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.