Technological diversification
Abstract
Why is GDP so much more volatile in poor countries than in rich ones? To answer this question, we propose a theory of technological diversification. Production makes use of different input varieties, which are subject to imperfectly correlated shocks. As in endogenous growth models, technological progress increases the number of varieties, raising average productivity. In our model, the expansion in the number of varieties provides diversification benefits against variety-specific shocks and it hence lowers the volatility of output. Technological complexity evolves endogenously in response to profit incentives. Complexity (and hence output stability) is positively related with the development of the country, the comparative advantage of the sector, and the sector’s skill and technology intensity. Using sector-level data for a broad sample of countries, we provide extensive empirical evidence confirming the cross-country and cross-sectoral predictions of the model.Download Info
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Paper provided by European Central Bank in its series Working Paper Series with number 551.Length: 59 pages
Date of creation: Nov 2005
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Handle: RePEc:ecb:ecbwps:20050551
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Keywords: specialization; technology choice; diversification; economic fluctuations.;Other versions of this item:
- Miklós Koren & Silvana Tenreyro, 2013. "Technological Diversification," American Economic Review, American Economic Association, vol. 103(1), pages 378-414, February.
- Miklós Koren & Silvana Tenreyro, 2007. "Technological diversification," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
- Koren, Miklós & Tenreyro, Silvana, 2007. "Technological Diversification," CEPR Discussion Papers 6523, C.E.P.R. Discussion Papers.
- Miklós Koren & Silvana Tenreyro, 2004. "Technological diversification," Working Papers 05-1, Federal Reserve Bank of Boston.
- Miklos Koren & Silvana Tenreyro, 2007. "Technological Diversification," CEP Discussion Papers dp0824, Centre for Economic Performance, LSE.
- Silvana Tenreyro & Miklos Koren, 2005. "Technological Diversification," 2005 Meeting Papers 392, Society for Economic Dynamics.
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
- O14 - Economic Development, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
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