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. Here, we study this network of knowledge linkages between sectors and its impact on firm innovation and aggregate growth. We first document a set of sector- and firm-level observations concerning knowledge applicability and firms' multi-sector patenting behavior. We then develop a general equilibrium model of multi-sector firm innovation in which intersectoral knowledge linkages determine a firm's self-selection into different sets of sectors and its R&D allocation across sectors. 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 can match new observations as demonstrated by simulation. The model also yields new insights regarding the mechanism through which sectoral fixed costs of R&D reduce 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 interestingly, total factor productivity and new product revenue share. Event studies based on first-time patentees also demonstrate similar effects following initial patent application. Contrary to conventional perception, we find that although state-owned enterprises (SOEs) on average have lower level of productivity, increases in patent stock is associated with significantly higher productivity growth among SOEs compared to their non-state-owned peers, especially after the SOE reform in late 1990s. Our study also investigates the role of firm dynamics and ownership changes in shaping this strong association, and possible channels that help tounderstand this observation.


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
  • "Comparative Advantage, Sector-biased Trade Costs and Global Imbalance" with Emine Boz and Hongrui Zhang, 2017.
  • "Fear of Floating and Product Structure" with Chuan Li, 2016.
  • "Large and Persistent Current Account Surpluses and Their Reversals" with Emine Boz, 2017.
  • "Technology Adoption, Heterogenous Firms and Growth" with Yi-Chan Tsai, 2013.

Comments and Discussions

  • Discussion of "Technology Shocks: Novel Implications for International Business Cycles"  by Andrea Raffo, NBER Summer Institute IFM, July 2009

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