Technological Innovation and International Trade: Winners and Losers

Paper Session

Saturday, Jan. 7, 2017 10:15 AM – 12:15 PM

Hyatt Regency Chicago, Crystal A
Hosted By: American Economic Association
  • Chair: Erik Loualiche, Massachusetts Institute of Technology

The Globalization Risk Premium

Jean-Noel Barrot
,
Massachusetts Institute of Technology
Julien Sauvagnat
,
Bocconi University
Erik Loualiche
,
Massachusetts Institute of Technology

Abstract

We investigate how globalization is reflected in asset prices. We use shipping costs to measure firms' exposure to globalization. Firms in low shipping cost industries carry a 8 percent risk premium, suggesting that their cash-flows covary negatively with investors' marginal utility. We find that the premium emanates from the risk of displacement of least efficient firms triggered by import competition. These findings suggest that foreign productivity shocks are associated with times when consumption is dear for investors. We discuss conditions under which a standard model of trade with asset prices can rationalize this puzzle.

Fracking, Drilling, and Asset Pricing: Estimating the Economic Benefits of the Shale Revolution

Erik Gilje
,
University of Pennsylvania
Robert Ready
,
University of Rochester
Nikolai Roussanov
,
University of Pennsylvania

Abstract

We use evidence from asset price data to quantify the contribution of shale oil to the
U.S. economy. Equity market valuations of firms engaged in shale oil extraction reflect
the market’s expectations about the future growth in shale oil supply and its potential
for raising aggregate productivity in the U.S. economy. We use returns on an index of
shale oil producers orthogonalized with respect to oil prices and industry-wide return
controls to extract an empirical measure of shale-specific productivity innovations. This
hedged strategy explains roughly 10% of the increase in aggregate U.S. equity market
capitalization since 2010.

Living the "American Dream" in Finland: The Social Mobility of Inventors

Philippe Aghion
,
College of France
Ufuk Akcigit
,
University of Chicago
Ari Hyytinen
,
University of Jyvaskyla
Otto Toivanen
,
University of Leuven

Abstract

In this paper we merge individual census data, individual patenting data, and individual IQ data from Finnish Defence Force to look at whether social origins or innate ability command the selection into becoming an innovator as well as the income mobility of an innovator. First, when looking at the determinants of the probability of becoming an inventor, we find that: (i) parental income impacts on the probability of becoming an inventor, even after controlling for IQ and education; (ii) parental education also impacts on the probability of becoming an inventor, and controlling for parental education reduces substantially the effect of parental income; (iii) total and visiospatial IQ matter for the probability of becoming an inventor. Second, when regressing son's IQ on parental characteristics, we found that overall, the latter explain less than 10% of variation in son IQ, thereby suggesting that our IQ measures largely reflect innate ability. Third, when looking at how becoming an innovator affects an individual's income mobility, we find that being an inventor enhances both, intragenerational and intergenerational social mobility, and that being an inventor very effectively reduces the father-son income relation.

Winners and Losers: Creative Destruction and the Stock Market

Leonid Kogan
,
Massachusetts Institute of Technology
Dimitris Papanikolaou
,
Northwestern University
Noah Stoffman
,
Indiana University

Abstract

We develop a general equilibrium model of asset prices in which the benefits of technological
innovation are distributed asymmetrically. Financial market participants do not capture all
the economic rents resulting from innovative activity, even when they own shares in innovating
firms. Economic gains from innovation accrue partly to the innovators, who cannot sell claims on
the rents their future ideas will generate. We show how the unequal distribution of gains from
innovation can give rise to the salient empirical patterns in asset price behavior, including a high
risk premium on the aggregate stock market, return comovement and average return differences
among growth and value firms, and the failure of traditional representative-agent asset pricing
models to account for these facts.
Discussant(s)
Matteo Maggiori
,
Harvard University
Ravi Jagannathan
,
Northwestern University
Heidi Williams
,
Massachusetts Institute of Technology
Jaroslav Borovicka
,
New York University
JEL Classifications
  • G1 - Asset Markets and Pricing
  • O4 - Economic Growth and Aggregate Productivity