Uncertainty-Induced Reallocations and Growth
62 Pages Posted: 7 Oct 2019
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Uncertainty-Induced Reallocations and Growth
Date Written: August 2019
Abstract
Focusing on both micro and aggregate U.S. data, we show the existence of a significant link between aggregate uncertainty and reallocation of resources away from R&D-intensive capital. This link is important because a decrease in the aggregate share of R&D-oriented capital forecasts lower medium-term growth. In a multi-sector production economy in which (i) growth is endogenously supported by risky R&D investments, and (ii) the representative agent is volatility-risk averse and has access to other safer technologies that do not support growth, uncertainty shocks have a first-order negative impact on medium-term growth and welfare.
Keywords: growth, reallocation, Uncertainty shocks
JEL Classification: E3, E6, G18
Suggested Citation: Suggested Citation