Growth and crisis, unavoidable connection? [Job Market
Paper]
Abstract. In emerging economies periods of rapid growth and large capital inflows can be followed by sudden stops and financial crises. The paper, abstracting from business cycles aspects, shows that the process of long run growth can be a key element in accounting for these facts. I study a growth model for a small open economy where decreasing marginal returns to capital appear only after the country has reached a threshold level of development, which is uncertain. Limited enforceability of contracts allows default on international debt. International investors can optimally choose to stop lending when the appearance of decreasing marginal returns slows down the growth of the economy, which then defaults and enters a financial crisis.
Monopolistic Innovation
Abstract. This paper studies the incentives to innovate in a industry characterized by an incumbent and a fringe of competitive innovators. The incumbent has developed a product of superior quality and, thanks to patents or other forms of legal protections, is a monopolist. Innovation unfolds along two dimensions: product innovation, which is a drastic improvement over the existing products, and process innovation, which represents a refinement of a product already developed. Competitive innovators use product innovation to try to `leap frog" the incumbent monopolist, which in turn innovates to increase a distance, in terms of the overall quality of its product, with the competitors. When the competitors have been sufficiently lagged behind, their attempt to overturn the incumbent ceases. The main result of the model, in contrast with Aghion and Howitt (1992), is that the long run innovation activity can completely disappear. Strong patents protection, which initially fosters innovation when the incumbent does not have a large advantage over the followers, ends up granting to the monopolist an everlasting predominance in the industry, and then discourages innovation.
Financial crises and the role of information acquisition (In progress)
Abstract. In tranquil times, when interest rates are low and business conditions are good, there are few incentives for investors to collect costly information about the quality of the projects being financed. If economic conditions stay smooth, bad projects are naturally liquidated and eliminated from the economy when their bad outcome is realized. These liquidations are generally spread over time and not very concentrated. However, if interest rates suddenly rise and economic conditions worsen, agents rush to acquire information on the true value of their investment. Bad projects are discovered altogether and we observe a wave of liquidations, which financially accelerates and amplifies the original small shocks .