Uncertainty-Induced Reallocations and Growth
57 Pages Posted: 18 Nov 2016 Last revised: 5 Dec 2017
Date Written: December 4, 2016
Focusing on U.S. data, we show the existence of a significant positive link between uncertainty and reallocation of resources from private R&D-intensive firms to both tangible private capital and government capital. This link is important because a decrease in the aggregate share of private R&D-oriented capital forecasts lower medium-term growth. We rationalize these novel empirical findings in a multi-sector production economy in which (i) growth is endogenously supported by risky R&D investments, (ii) the government accumulates capital that, at the equilibrium, is safe; and (iii) the representative agent has an explicit fear toward uncertainty.
Keywords: Uncertainty shocks, Reallocation, Safe Public Capital
JEL Classification: E3; E6; G18
Suggested Citation: Suggested Citation