Presented By: Department of Economics Seminars
Technology Adoption, Innovation, and Inequality in a Global World.
Florian Trouvain, University of Michigan
Economic Growth since roughly the mid 90s is characterized by i) declining cross-country inequality, ii) rising within-country inequality, and iii) overall weak growth in advanced economies. These growth patterns were accompanied by increasing degrees of market integration between advanced economies and emerging markets. I provide a unifying explanation for these facts by developing a simple theory of long-run growth that focuses on the interaction of innovation and technology adoption. I model both activities as skill-intensive, and study how integration with emerging markets shapes the returns to innovation vis-a-vis technology adoption. Technology adoption in emerging markets boosts the development of frontier technology in advanced economies and induces a rising skill premium, which in turn leads to less domestic technology adoption. When ideas are getting harder to find, the growth drag from reduced domestic adoption dominates positive innovation effects, explaining slow TFP growth and stagnant wages for non-college workers in advanced economies. Cross-sectional evidence from German micro data, which leverages regional heterogeneity in specialization in innovation vs production together with the fall of the Iron Curtain, corroborates the key mechanism.
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