Endogenous Technology Adoption and R&D as Sources of Business Cycle Persistence

53 Pages Posted: 22 Feb 2016 Last revised: 16 Feb 2023

See all articles by Diego Anzoategui

Diego Anzoategui

Rutgers University

Diego Comin

Dartmouth College

Mark Gertler

New York University - Leonard N. Stern School of Business - Department of Economics; National Bureau of Economic Research (NBER)

Joseba Martinez

London Business School - Department of Economics

Date Written: February 2016

Abstract

We examine the hypothesis that the slowdown in productivity following the Great Recession was in significant part an endogenous response to the contraction in demand that induced the downturn. We first present some panel data evidence that technology diffusion is highly cyclical. We then develop and estimate a macroeconomic model with an endogenous TFP mechanism that allows for both costly development and adoption of new technologies. We then show that the model's implied cyclicality of technology diffusion is consistent with the panel data evidence. We next use the model to assess the sources of the productivity slowdown. We find that a significant fraction of the post- Great Recession fall in productivity was an endogenous phenomenon. The endogenous productivity mechanism also helps account for the slowdown in productivity prior to the Great Recession, though for this period shocks to the effectiveness of R&D expenditures are critical. Overall, the results are consistent with the view that demand factors have played a role in the slowdown of capacity growth since the onset of the recent crisis. More generally, they provide insight into why recoveries from financial crises may be so slow.

Suggested Citation

Anzoategui, Diego and Comin, Diego and Gertler, Mark and Martinez, Joseba, Endogenous Technology Adoption and R&D as Sources of Business Cycle Persistence (February 2016). NBER Working Paper No. w22005, Available at SSRN: https://ssrn.com/abstract=2736081

Diego Anzoategui (Contact Author)

Rutgers University ( email )

New Brunswick, NJ
United States

Diego Comin

Dartmouth College ( email )

Department of Sociology
Hanover, NH 03755
United States

Mark Gertler

New York University - Leonard N. Stern School of Business - Department of Economics ( email )

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7th Floor
New York, NY 10003
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National Bureau of Economic Research (NBER)

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Joseba Martinez

London Business School - Department of Economics ( email )

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London NW1 4SA
United Kingdom

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