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Discussion Paper Details

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Title: Uncertainty-Induced Reallocations and Growth

Author(s): Ravi Bansal, Mariano Massimiliano Croce, Wenxi Liao and Samuel Rosen

Publication Date: August 2019

Keyword(s): growth, reallocation and Uncertainty shocks

Programme Area(s): Financial Economics and Macroeconomics and Growth

Abstract: Focusing on both micro and aggregate U.S. data, we show the existence of a significant link between aggregate uncertainty and reallocation of resources away from R&D-intensive capital. This link is important because a decrease in the aggregate share of R&D-oriented capital forecasts lower medium-term growth. In a multi-sector production economy in which (i) growth is endogenously supported by risky R&D investments, and (ii) the representative agent is volatility-risk averse and has access to other safer technologies that do not support growth, uncertainty shocks have a first-order negative impact on medium-term growth and welfare.

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Bibliographic Reference

Bansal, R, Croce, M, Liao, W and Rosen, S. 2019. 'Uncertainty-Induced Reallocations and Growth'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13964