Technological Diversification

Miklós Koren · Silvana Tenreyro

154 citations0/0 files storedAmerican Economic Review

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Economic Growth and Productivity Economic Theory and Policy Economic and Technological Innovation

Abstract

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 variety-specific 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. (JEL D21, D24, E23, O33, O47)

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References

1988On the mechanics of economic development 1986Increasing Returns and Long-Run Growth 1990Endogenous Technological Change 1962The Economic Implications of Learning by Doing 1997Credit Cycles 1990Financial Development, Growth, and the Distribution of Income 1993The O-Ring Theory of Economic Development 1997Was Prometheus Unbound by Chance? Risk, Diversification, and Growth

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