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Technological Diversification

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  • Miklós Koren
  • Silvana Tenreyro

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)

Suggested Citation

  • Miklós Koren & Silvana Tenreyro, 2013. "Technological Diversification," American Economic Review, American Economic Association, vol. 103(1), pages 378-414, February.
    • Handle: RePEc:aea:aecrev:v:103:y:2013:i:1:p:378-414
    Note: DOI: 10.1257/aer.103.1.378
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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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