American Economic Review: Vol. 103 No. 1 (February 2013)


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Technological Diversification

Article Citation

Koren, Miklós, and Silvana Tenreyro. 2013. "Technological Diversification." American Economic Review, 103(1): 378-414.

DOI: 10.1257/aer.103.1.378


Economies at early stages of development are frequently shaken by large changes in growth rates, whereas advanced economies tend to experience relatively stable growth rates. To explain this pattern, we propose a model of technological diversification. Production makes use of input-varieties that are subject to imperfectly correlated shocks. Endogenous variety adoption by firms raises average productivity and provides diversification benefits against variety-specific shocks. Firm-level and aggregate volatility thus decline as a by-product of the development process. We quantitatively assess the model's predictions and find that it can generate patterns of volatility and development consistent with the data. (JEL D21, D24, E23, O33, O47)

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Koren, Miklós (Central European U, Budapest)
Tenreyro, Silvana (CEP, London School or Economics and Political Science)

JEL Classifications

D21: Firm Behavior: Theory
D24: Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
E23: Macroeconomics: Production
O33: Technological Change: Choices and Consequences; Diffusion Processes
O47: Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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