Refereed Publications:

Working Papers:

Abstract:  We develop a quantifiable multi-country, multi-sector endogenous growth model in which comparative advantage is endogenously determined by innovation and knowledge diffusion. We quantify the effect of a trade liberalization on innovation, comparative advantage and welfare. Changes in trade frictions reallocate innovation and comparative advantage across sectors: innovation reallocates towards sectors with larger increases in comparative advantage, and comparative advantage reallocates towards sectors with stronger knowledge spillovers. Knowledge spillovers amplify the effect as countries and sectors benefit from technology developed elsewhere. In contrast to one-sector models without knowledge spillovers, we find significant dynamic gains from trade, driven by innovation and diffusion.

Abstract:  The majority of innovations are developed by multi-sector firms. The knowledge needed to invent new products is more easily adapted from some sectors than from others. We study this network of knowledge linkages between sectors and its impact on firm innovation and aggregate growth. We first document a set of sectoral-level and firm-level observations on knowledge applicability and firms' multi-sector patenting behavior. We then develop a general equilibrium model of firm innovation in which inter-sectoral knowledge linkages determine the set of sectors a firm  chooses to innovate in and how much R&D to invest in each sector. It captures how firms evolve in the technology space, accounts for cross-sector differences in R&D intensity, and describes an aggregate model of technological change. The model matches new observations as demonstrated by simulation. It also yields new insights regarding the mechanism through which sectoral fixed costs of R&D affect growth.
Abstract: This paper studies changes in the transmission of common versus sectoral idiosyncratic shocks across different U.S. nonfarm business sectors during the Great Recession, and evaluates the cross-sectoral spillovers. Shocks are identified by dynamic factor methods. We find that the Great Recession is largely a time of heightened impact of common shocks--which accounts for 3/4 of aggregate volatility--and large spillovers of negative finance-related shocks. In addition, prior to the Recession, aggregate fluctuations are mainly driven by sector-specific shocks, in contrast with findings from previous studies.

Abstract: This paper examines whether the rapid growing firm patenting activity in China is associated with real economic outcome by building a unique dataset uniting detailed firm balance sheet information with firm patent data for the period of 1998-2007. We find strong evidence that within-firm increases in patent stock are associated with increases in firm size, exports, and more importantly, firm productivity and new product revenue share. Event studies of initial patent application using first-time patentees as the treatment group and non-patenting firms selected based on Propensity-Score Matching method as the control group also generate similar findings. State-owned enterprises are found to have higher productivity-patenting elasticities than private firms. Changes in productivity associated with patenting, however, should not be interpreted as being caused by patenting, as our instrumental variable analysis---using the initial local intellectual property right protection as an instrument---does not find significant effect of patenting on productivity.

Abstract: This paper studies how the composition of knowledge, in addition to the amount of knowledge capital, a country possesses matters for development. We develop a multi-sector model of innovation, trade and growth, in which sectors differ in terms of their knowledge applicability in innovation in other sectors. The model describes how countries allocate R&D in different sectors and how the endogenous cross-country variations in knowledge composition matters for income difference. It yields new insights that trade costs—besides reducing trade volume— impede aggregate innovation efficiency through the within-country allocation of R&D towards sectors with lower knowledge applicability, demonstrating a “composition effect”. We construct measures quantifying the sector-specific knowledge applicability using cross-sector patent citations. Based on this index, we present cross-country evidence that supports the model’s main implications: (a) countries that are more geographically remote tend to export disproportionately less in highly applicable sectors; (b) the “applicability bias” of a country’s knowledge structure is positively associated with its income level.

Abstract: This paper presents a model incorporating endogenous firm entry (or product creation) that successfully translates positive news about the future into current expansions, and accounts for the positive comovements in output, consumption, investment and employment. The key elements are a time-variant sunk entry cost and variable capital utilization. In response to the expectation of future positive technology shocks, firms correctly predict the competition level will increase; they in turn reduce markup, which raises entry cost, and this consequently causes firms to choose to enter early. Along with firm entry, more intensive capital utilization stimulates new investment and employment, while expanding the production frontier; this facilitates a rise in both consumption and investment (even with a separable utility function). The model also successfully generates increases in stock prices (firm values), and positive comovements in response to a range of different shocks - preference shocks, exit shocks, and cost shocks.

Other Writings

Work in Progress
  • "Effective Trade Costs and Global Imbalance" with Emine Boz and Hongrui Zhang, 2018.
  • "Corporate Concentration and Saving" with Mai Dao, Isabel Hanisch, Callum Jones, 2018.
  • "Predicting Sudden Stops: A Machine Learning Analysis" with Suman Basu, Roberto Perrelli and Weining Xin, 2018.
  • "Fear of Floating and Product Structure" with Chuan Li, 2016.
  • "Large and Persistent Current Account Surpluses and Their Reversals" with Emine Boz, 2017.

        Comments and Discussions
      1. Discussion of "Technology Shocks: Novel Implications for International Business Cycles"  by Andrea Raffo, NBER Summer Institute IFM, July 2009

      2. Discussion of "Capital Obsolescence and Agricultural Productivity" by Julieta Caunedo and Elisa Keller, 2nd Workshop on Macroeconomic Policy and Income Inequality, IMF, Oct 2015