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Technology diffusion and international business cycles

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  • Uluc Aysun

    (University of Central Florida, Orlando, FL)

Abstract

This paper shows that the cross-country diffusion of innovations forms a critical channel through which macroeconomic shocks are transmitted across economies. This inference is obtained from a two country, medium scale DSGE model that includes an endogenous growth mechanism. R&D activity and innovation are the main components of this mechanism and they are introduced through a labor-augmenting technology. The model features international diffusion of technologies as the innovations by a firm are not only adopted by other firms within a country but also by those in the other country. Estimating the model with US and Euro Area data, I observe that foreign shocks contribute a high share to the macroeconomic volatility in each economy. By contrast, foreign shocks make a negligible contribution when the model is estimated after shutting down technology diffusion. The results, more generally, show that it is not technology shocks, nor any other shock, but the transmission of shocks through the diffusion of new technologies that is the key driver of international business cycles.

Suggested Citation

  • Uluc Aysun, 2023. "Technology diffusion and international business cycles," Working Papers 2023-02, University of Central Florida, Department of Economics.
    • Handle: RePEc:cfl:wpaper:2023-02ua
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    More about this item

    Keywords

    Research and development; international business cycles; endogenous growth; DSGE; Bayesian estimation.;
    All these keywords.

    JEL classification:

    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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