Working Paper: CEPR ID: DP13964
Authors: Ravi Bansal; Mariano Massimiliano Croce; Wenxi Liao; Samuel Rosen
Abstract: Focusing on both micro and aggregate U.S. data, we show the existence of a significant linkbetween aggregate uncertainty and reallocation of resources away from R&D-intensive capital.This link is important because a decrease in theaggregate share of R&D-oriented capital forecasts lower medium-term growth. In a multi-sector production economyin 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.
Keywords: Uncertainty; Shocks; Reallocation; Growth
JEL Codes: E3; E6; G18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Uncertainty shocks (D89) | Resource reallocation away from R&D-intensive capital (O39) |
| Resource reallocation away from R&D-intensive capital (O39) | Medium-term growth (O53) |
| Uncertainty shocks (D89) | Reduced investment in innovation (O39) |
| Adverse uncertainty shock (D89) | Reallocation away from private R&D capital (O39) |
| Adverse uncertainty shock (D89) | Reallocation away from tangible capital (E22) |