Big Push in Distorted Economies

53 Pages Posted: 15 Mar 2021

See all articles by Francisco J. Buera

Francisco J. Buera

Washington University in St. Louis; National Bureau of Economic Research (NBER)

Hugo A. Hopenhayn

University of California, Los Angeles (UCLA) - Department of Economics

Yongseok Shin

Washington University in St. Louis; Federal Reserve Banks - Federal Reserve Bank of St. Louis; National Bureau of Economic Research (NBER)

Nicholas Trachter

Federal Reserve Banks - Federal Reserve Bank of Richmond

Multiple version iconThere are 2 versions of this paper

Date Written: March 2021

Abstract

Why don't poor countries adopt more productive technologies? Is there a role for policies that coordinate technology adoption? To answer these questions, we develop a quantitative model that features complementarity in firms' technology adoption decisions: The gains from adoption are larger when more firms adopt. When this complementarity is strong, multiple equilibria and hence coordination failures are possible. More important, even without equilibrium multiplicity, the model elements responsible for the complementarity can substantially amplify the effect of distortions and policies. In what we call the Big Push region, the impact of idiosyncratic distortions is over three times larger than in models without such complementarity. This amplification enables our model to nearly fully account for the income gap between India and the US without coordination failures playing a role.

JEL Classification: L11, L16, O14, O25

Suggested Citation

Buera, Francisco J. and Hopenhayn, Hugo A. and Shin, Yongseok and Trachter, Nicholas, Big Push in Distorted Economies (March 2021). CEPR Discussion Paper No. DP15910, Available at SSRN: https://ssrn.com/abstract=3805325

Francisco J. Buera (Contact Author)

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1208
Saint Louis, MO MO 63130-4899
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National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Hugo A. Hopenhayn

University of California, Los Angeles (UCLA) - Department of Economics ( email )

Box 951477
Los Angeles, CA 90095-1477
United States

Yongseok Shin

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1208
Saint Louis, MO 63130-4899
United States

Federal Reserve Banks - Federal Reserve Bank of St. Louis

411 Locust St
Saint Louis, MO 63011
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Nicholas Trachter

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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