Aghion P, Blundell R, Griffith R, Howitt P, Prantl S.
The Effects of Entry on Incumbent Innovation and Productivity. 2006.
AbstractHow does firm entry affect innovation incentives and productivity growth in incumbent firms? Micro-data suggests that there is heterogeneity across industries - incumbents in technologically advanced industries react positively to foreign firm entry, but not in laggard industries. To explain this pattern, we introduce entry into a Schumpeterian growth model with multiple sectors which differ by their distance to the technological frontier. We show that technologically advanced entry threat spurs innovation incentives in sectors close to the technological frontier - successful innovation allows incumbents to prevent entry. In laggard sectors it discourages innovation - increased entry threat reduces incumbents' expected rents from innovating. We find that the empirical patterns hold using rich micro-level productivity growth and patent panel data for the UK, and controlling for the endogeneity of entry by exploiting the large number of policy reforms undertaken during the Thatcher era.
PDF Aghion P, Bacchetta P, Ranciere R, Rogoff K.
Exchange Rate Volatility and Productivity Growth: The Role of Financial Development. 2006.
AbstractThis paper offers empirical evidence that real exchange rate volatility can have a significant impact on long-term rate of productivity growth, but the effect depends critically on a country's level of Önancial development. For countries with relatively low levels of financial development, exchange rate volatility generally reduces growth, whereas for Önancially advanced countries, there is no significant effect. Our empirical analysis is based on an 83 country data set spanning the years 1960-2000; our results appear robust to time window, alternative measures of Önancial development and exchange rate volatility, and outliers. We also o§er a simple monetary growth model in which real exchange rate uncertainty exacerbates the negative investment effects of domestic credit market constraints. Our approach delivers results that are in striking contrast to the vast existing empirical exchange rate literature, which largely Önds the effects of exchange rate volatility on real activity to be relatively small and insignificant.
PDF Aghion P, Marinescu I.
Cyclical Budgetary Policy and Economic Growth: What Do We Learn from OECD Panel Data?. 2006.
AbstractThis paper uses yearly panel data on OECD countries to analyze the relationship between growth and the cyclicality of government debt. We develop new time-varying estimates of the cyclicality of public debt. Our main findings can be summarized as follows: (i) less procyclical public debt growth can have significantly positive effects on productivity growth, in particular when financial development is lower; (ii) public debt growth has become increasingly countercyclical in most OECD countries over the past twenty years, but this trend has been less pronounced in the EMU; (iii) less financially developed or more open economies display less countercyclical public debt growth.
PDF Aghion P, Meghir C, Vandenbussche J.
Distance to Frontier, Growth, and the Composition of Human Capital. Journal of Economic Growth. 2006.
AbstractWe examine the contribution of human capital to economy-wide technological improvements through the two channels of innovation and imitation. We develop a theoretical model showing that skilled labor has a higher growth-enhancing effect closer to the technological frontier under the reasonable assumption that innovation is a relatively more skill-intensive activity than imitation. Also, we provide evidence in favor of this prediction using a panel dataset covering 19 OECD countries between 1960 and 2000 and explain why previous empirical research had found no positive relationship between initial schooling level and subsequent growth in rich countries. In particular, we show that in OECD economies it is crucial to isolate the two separate margins of primary/secondary and tertiary education. Interestingly, the latter type of schooling proves to be a factor of economic divergence.
PDF Aghion P, Griffith R, Howitt P.
Competition and Vertical Integration. American Economic Review, Papers and Proceedings. 2006.
Aghion P, Howitt P.
Appropriate Growth Policy, Schumpeter Lecture. Journal of the European Economic Association. 2006.
AbstractIn this lecture, we use Schumpeterian growth theory, where growth comes from quality- improving innovations, to elaborate a theory of growth policy and to explain the growth gap between Europe and the US. Our theoretical apparatus systematizes the case-by-case approach to growth policy design. The emphasis is on three policy areas that are potentially relevant for growth in Europe, namely: competition and entry, education, and macropolicy. We argue that higher entry and exit (higher firm turnover) and increased emphasis on higher education are more growth enhancing in countries that are closer to the technological frontier. We also argue that countercyclical budgetary policies are more growth-enhancing in countries with lower financial development. The analysis thus points to important interaction effects between policies and state variables, such as distance to frontier or financial development, in growth regressions. Finally, we argue that the other endogenous growth models, namely the AK and product variety models, fail to account for the evidence on the relationship between competition, education, volatility and growth, and consequently cannot deliver relevant policy prescriptions in the three areas we consider.
PDF Aghion P, Acemoglu D, Zilibotti F.
Distance to Frontier, Selection, and Economic Growth. Journal of the European Economic Association. 2006.