Discussion paper

DP13964 Uncertainty-Induced Reallocations and Growth

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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Citation

Bansal, R, M Croce, W Liao and S Rosen (eds) (2019), “DP13964 Uncertainty-Induced Reallocations and Growth”, CEPR Press Discussion Paper No. 13964. https://cepr.org/publications/dp13964