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Idiosyncratic Distortions and Technology Adoption

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  • Stephen Ayerst

Abstract

Empirical evidence indicates that resource misallocation has a substantial negative effect on aggregate productivity in developing countries. I show that the same underlying institutions that create misallocation are also important for explaining cross-country technology differences. I study a model of heterogeneous firms that choose both labour and technology inputs. Distortions are modeled as idiosyncratic wedges on firm revenues and delay adoption by disincentivizing firms from investing in newer technologies. At the aggregate level, distortions targeting high productivity firms delay the initial adoption of new technologies. In the calibrated model, distortions account for a large portion of the observed cross-country technology differences. Moving from the distortions of the bottom decile economy to the United States' level explains just under half of the observed adoption lag and increases productivity by 89%. Over half of the productivity increase is from firms adjusting technology.

Suggested Citation

  • Stephen Ayerst, 2016. "Idiosyncratic Distortions and Technology Adoption," Working Papers tecipa-571, University of Toronto, Department of Economics.
  • Handle: RePEc:tor:tecipa:tecipa-571
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    File URL: https://www.economics.utoronto.ca/public/workingPapers/tecipa-571.pdf
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    References listed on IDEAS

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    Cited by:

    1. Diego Restuccia & Richard Rogerson, 2017. "The Causes and Costs of Misallocation," Journal of Economic Perspectives, American Economic Association, vol. 31(3), pages 151-174, Summer.
    2. Diego Restuccia, 2018. "Misallocation and Aggregate Productivity across Time and Space," Working Papers tecipa-608, University of Toronto, Department of Economics.
    3. Chaoran Chen, 2017. "Technology Adoption, Capital Deepening, and International Productivity Differences," Working Papers tecipa-584, University of Toronto, Department of Economics.

    More about this item

    Keywords

    Productivity; Misallocation; Technology Diffusion.;

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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