Working Paper: CEPR ID: DP18506
Authors: Miguel Leonledesma; Katsuyuki Shibayama
Abstract: We develop a model where temporary non-technology shocks can lead to permanent changes in the rate of growth of total factor productivity (TFP). The key ingredient of the model is a matching processes between basic researchers, product developers, and the stock of knowledge of the economy. In this context, search externalities generate vicious and virtuous cycles in R&D. The model has a unique equilibrium path but multiple balanced growth paths (BGPs). After a deep or long-lived shock, the economy can transit between these BGPs, generating “super-hysteresis” in TFP. We calibrate the model in the context of the Japanese growth slowdown and show that, quantitatively, it can explain well the TFP growth decline after the financial crisis in the 1990s. The simultaneous occurrence of demographic shocks and a persistent but temporary financial crisis gave rise to a “wretched coincidence” resulting in the growth slowdown.
Keywords: growth slowdowns; research and development; superhysteresis
JEL Codes: O40; O49; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| temporary non-technology shocks (E39) | long-term growth rate of TFP (O49) |
| financial crises (G01) | long-term growth rate of TFP (O49) |
| demographic shocks + financial crises (F65) | growth slowdown (O41) |
| high TFP growth BGP (O49) | low TFP growth BGP (O49) |
| temporary shocks (E32) | permanent changes in TFP growth rates (O49) |
| superhysteresis (Y50) | decline in productivity growth (O49) |