Citation

Discussion Paper Details

Please find the details for DP6523 in an easy to copy and paste format below:

Full Details | Bibliographic Reference

Full Details

Title: Technological Diversification

Author(s): Mikl�s Koren and Silvana Tenreyro

Publication Date: October 2007

Keyword(s): development, endogenous growth, technological diversification and volatility

Programme Area(s): International Macroeconomics

Abstract: Economies at early stages of development are often shaken by abrupt changes in growth rates, whereas in advanced economies growth rates tend to be relatively stable. To explain this pattern, we propose a theory of technological diversification. Production makes use of different input varieties, which are subject to imperfectly correlated shocks. Technological progress takes the form of an increase in the number of varieties, raising average productivity. In addition, the expansion in the number of varieties in our model provides diversification benefits against variety-specific shocks and it can hence lower the volatility of output growth. Technological complexity evolves endogenously in response to profit incentives. The decline in volatility thus arises as a by-product of firms' incentives to increase profits and is hence a likely outcome of the development process. We quantitatively asses the predictions of the model in light of the empirical evidence and find that for reasonable parameter values, the model can generate a decline in volatility with the level of development comparable to that in the data.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=6523

Bibliographic Reference

Koren, M and Tenreyro, S. 2007. 'Technological Diversification'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=6523