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Technological Diversification

  • Silvana Tenreyro
  • Miklos Koren

    ()

    (Economics Harvard University, Hungarian Academy of Sciences)

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 varietyspecific 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.

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Paper provided by Society for Economic Dynamics in its series 2005 Meeting Papers with number 392.

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Date of creation: 2005
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Handle: RePEc:red:sed005:392
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

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