Working Paper: NBER ID: w28561
Authors: Francisco J. 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; economic development; coordination failures; complementarity; idiosyncratic distortions
JEL Codes: E23; L16; O14; O25
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| idiosyncratic distortions (D91) | aggregate productivity (E23) |
| idiosyncratic distortions (D91) | GDP (E20) |
| reduction of distortions (F12) | adoption of productive technologies (O49) |
| reduction of distortions (F12) | economic performance (P17) |
| complementarity in firms' adoption decisions (L15) | amplification of distortions (C92) |
| amplification of distortions (C92) | income gap between countries (F63) |