IDEAS home Printed from https://ideas.repec.org/p/qed/wpaper/1147.html
   My bibliography  Save this paper

Coordination Failure in Technological Progress, Economic Growth and Volatility

Author

Listed:
  • Mei Li

    () (Queen's University)

Abstract

Technological progress has long been posited to be crucial in a country's economic growth. This paper argues that coordination failure in a country's new technology investment can be one of the barriers in a country's capital accumulation and economic growth. The global game established by Morris and Shin(2000) is extended to a two-sector overlapping generations model where capital goods can be produced by two different technologies. The first is a conventional technology with constant returns, which are perfectly revealed to economic agents. The second is a new technology exhibiting increasing return to scale due to technological externalities, whose returns economic agents only have incomplete information about. Economic agents have to choose which technology to invest in. My model reveals that under certain circumstances coordination failure in the capital goods sector will occur and be manifested as under-investment in the new technology. In this way, I explain how coordination failure in a country's technology updating process leads to slower capital accumulation and economic growth. More interestingly, the model generates a positive correlation between economic growth and volatility through a new channel associated with coordination failure. Policy implications are discussed as well.

Suggested Citation

  • Mei Li, 2007. "Coordination Failure in Technological Progress, Economic Growth and Volatility," Working Papers 1147, Queen's University, Department of Economics.
  • Handle: RePEc:qed:wpaper:1147
    as

    Download full text from publisher

    File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1147.pdf
    File Function: First version 2007
    Download Restriction: no

    References listed on IDEAS

    as
    1. George-Marios Angeletos & Alessandro Pavan, 2004. "Transparency of Information and Coordination in Economies with Investment Complementarities," American Economic Review, American Economic Association, vol. 94(2), pages 91-98, May.
    2. Morris, Stephen & Shin, Hyun Song, 1998. "Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks," American Economic Review, American Economic Association, vol. 88(3), pages 587-597, June.
    3. Carlsson, Hans & van Damme, Eric, 1993. "Global Games and Equilibrium Selection," Econometrica, Econometric Society, vol. 61(5), pages 989-1018, September.
    4. Rui Castro & Gian Luca Clementi & Glenn Macdonald, 2009. "Legal Institutions, Sectoral Heterogeneity, and Economic Development," Review of Economic Studies, Oxford University Press, vol. 76(2), pages 529-561.
    5. Stephen Morris & Hyun Song Shin, 2000. "Global Games: Theory and Applications," Cowles Foundation Discussion Papers 1275R, Cowles Foundation for Research in Economics, Yale University, revised Aug 2001.
    6. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-894, October.
    7. Stephen Morris & Hyun Song Shin, 2001. "Rethinking Multiple Equilibria in Macroeconomic Modeling," NBER Chapters,in: NBER Macroeconomics Annual 2000, Volume 15, pages 139-182 National Bureau of Economic Research, Inc.
    8. Vives, Xavier, 2004. "Complementarities and Games: New Developments," CEPR Discussion Papers 4742, C.E.P.R. Discussion Papers.
    9. Ennis, Huberto M. & Keister, Todd, 2003. "Economic growth, liquidity, and bank runs," Journal of Economic Theory, Elsevier, vol. 109(2), pages 220-245, April.
    10. Ricardo J. Caballero & Richard K. Lyons, 1989. "The Role of External Economies in U.S. Manufacturing," NBER Working Papers 3033, National Bureau of Economic Research, Inc.
    11. Caballero, Ricardo J. & Lyons, Richard K., 1990. "Internal versus external economies in European industry," European Economic Review, Elsevier, vol. 34(4), pages 805-826, June.
    12. Stephen Morris & Hyun Song Shin, 2002. "Social Value of Public Information," American Economic Review, American Economic Association, vol. 92(5), pages 1521-1534, December.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Economic Growth; Technological externalities; Coordination Failure;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D9 - Microeconomics - - Micro-Based Behavioral Economics

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:qed:wpaper:1147. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Babcock). General contact details of provider: http://edirc.repec.org/data/qedquca.html .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.