Working Paper: CEPR ID: DP15910
Authors: Francisco Buera; Hugo Hopenhayn; Yongseok Shin; Nicholas Trachter
Abstract: Why don't poor countries adopt more productive technologies? Is there a role for policies that coordinate technology adoption? To answer these questions, we develop a quantitative model that features complementarity in firms' technology adoption decisions: The gains from adoption are larger when more firms adopt. When this complementarity is strong, multiple equilibria and hence coordination failures are possible. More important, even without equilibrium multiplicity, the model elements responsible for the complementarity can substantially amplify the effect of distortions and policies. In what we call the Big Push region, the impact of idiosyncratic distortions is over three times larger than in models without such complementarity. This amplification enables our model to nearly fully account for the income gap between India and the US without coordination failures playing a role.
Keywords: technology adoption; big push; complementarities; industrial policy
JEL Codes: L11; L16; O14; O25
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| complementarity in technology adoption decisions (L15) | larger gains from adopting modern technology (O49) |
| more firms adopt (L20) | larger gains from adopting modern technology (O49) |
| complementarity in technology adoption decisions (L15) | amplification of effects of distortions and policies (H31) |
| idiosyncratic distortions (D91) | larger impact (F69) |
| small reductions in distortions (F12) | disproportionately large increases in adoption and aggregate productivity (O49) |