Working Paper: NBER ID: w22005
Authors: Diego Anzoategui; Diego Comin; Mark Gertler; Joseba Martinez
Abstract: We examine the hypothesis that the slowdown in productivity following the Great Recession was in significant part an endogenous response to the contraction in demand that induced the downturn. We first present some panel data evidence that technology diffusion is highly cyclical. We then develop and estimate a macroeconomic model with an endogenous TFP mechanism that allows for both costly development and adoption of new technologies. We then show that the model's implied cyclicality of technology diffusion is consistent with the panel data evidence. We next use the model to assess the sources of the productivity slowdown. We find that a significant fraction of the post- Great Recession fall in productivity was an endogenous phenomenon. The endogenous productivity mechanism also helps account for the slowdown in productivity prior to the Great Recession, though for this period shocks to the effectiveness of R&D expenditures are critical. Overall, the results are consistent with the view that demand factors have played a role in the slowdown of capacity growth since the onset of the recent crisis. More generally, they provide insight into why recoveries from financial crises may be so slow.
Keywords: Technology Adoption; R&D; Business Cycles; Productivity; Financial Crises
JEL Codes: E30; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| reduced demand (R22) | decline in investment in productivity-enhancing technologies (R&D and adoption) (O49) |
| demand shocks (E39) | cyclical behavior of R&D and technology adoption (O33) |
| liquidity demand shock (E41) | speed of technology adoption (O33) |
| liquidity demand shock (E41) | overall productivity (O49) |
| decline in efficiency of R&D investments (O39) | productivity slowdown (O49) |
| endogenous productivity mechanism (O49) | productivity decline during the Great Recession (O49) |
| decline in R&D effectiveness (O32) | productivity slowdown before the recession (O49) |