Growth and Welfare Implications of Sector-Specific Innovations

Revised version, Jan 2021

I examine the optimal government subsidy of R&D activities when sectors are heterogeneous. To this end, I build an endogenous growth model where R&D drives macroeconomic growth and firm dynamics in two sectors with different characteristics: a consumption-goods sector and an investment-goods sector. I highlight how various externalities in the innovation process affect the allocation of innovative resources across industries. I calibrate the model to U.S. data and study the quantitative properties of the model. By explicitly examining the transition path after the change in subsidy, I highlight the tradeoff between the short-run level of consumption and long-run growth. I find that the optimal combination of the subsidy rates, as a fraction of firm R&D expenditures, is 84 percent in consumption sector and 88 percent in investment sector. By moving from the baseline subsidy rates (10 percent in both sectors), society can achieve a 20 percent welfare gain in consumption equivalent terms. The annual GDP growth rate increases from 1.5 percent to 3.2 percent by this change in subsidy. Finally, I show that it is always optimal to subsidize R&D spending in investment sector at a higher rate than that in the consumption sector when the government’s subsidy budget is limited.

Social Planner

Gross Worker Flows over the Life Cycle

(joint with Tomaz Cajner and Toshihiko Mukoyama)

Link to the paper

This paper constructs a quantitative general equilibrium model which allows us to analyze the gross worker flows over the workers? life cycle and how various policies interact with these flows. We first document the life-cycle patterns of flows across different labor market states (employment, unemployment, and not in the labor force), as well as job-to-job transitions, in the US. Then we build a model of the aggregate labor market that incorporates the life cycle of workers, consumption-saving decisions, and labor market frictions. We estimate the model with the US data and find that the model fits the data patterns very well. Through the lens of the model, we uncover the fundamental forces that drive the life-cycle patterns. Finally, we use the estimated model to investigate the effects of policies on aggregate labor market outcomes, such as unemployment rate and the labor-force participation rate. In particular, we analyze a taxes-and-transfers policy and an unemployment insurance policy.

Dancing with the Stars: Does Playing in Elite Tournaments Affect Performance?

(joint with Mehdi Hamidi Sahneh)

Revised version, December 2020

This paper documents spillover effects using participation in an elite international football tournament as a laboratory. Using a novel dataset from top 5 European football leagues, we find that participation in highly selective UEFA Champions League (UCL) generates large performance gains to participating teams in their domestic leagues. More precisely, UCL participation improves goal differences (goals scored minus goals conceded) by approximately 0.3 goals per game and probability margin (probability of winning minus probability of losing) by approximately 10 percentage points. By investigating causal channels through which participation in the UCL might affect performance, we argue that our results suggest the importance of spillover effects in sports.

Regression discontinuity