Growth and crisis, unavoidable connection? [download]
Abstract. In emerging economies periods of rapid growth and large capital inflows can be followed by sudden stops and financial crises. I show that, in the presence of financial markets imperfections, a simple modification of a neoclassical growth model can account 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 optimally choose to suddenly restrict lending when the appearance of decreasing marginal returns slows down growth. The economy defaults and enters a financial crisis.
Financial innovation and risk: the role of information [download]
Abstract. Financial innovation has increased diversification opportunities and lowered investment costs, but has not reduced the relative cost of active (informed) investment strategies relative to passive (less informed) strategies. What are the consequences? I study an economy with linear production technologies, some more risky than others. Investors can use low quality public information or collect high quality, but costly, private information. Information helps avoiding excessively risky investments. Financial innovation lowers the incentives for private information collection and deteriorates public information: the economy invests more often in excessively risky technologies. This changes the business cycle properties and can reduce welfare by increasing the likelihood of "liquidation crises".
Leadership contestability, monopolistic rents and growth [download]
Abstract. I construct an endogenous growth model where R&D is carried out at the industry level in a game of innovation between leaders and followers. Innovation costs for followers are assumed to increase with the technological lag from leaders. I obtain three results that contrast with standard Schumpeterian models, such as Aghion and Howitt (1992). First, leaders may innovate in equilibrium, in an attempt to force followers to drop out of the innovation game. Second, policies (such as patents) that allow for strong protections of monopolies can reduce the steady state growth rate of the economy. Third, multiple equilibria arise when monopolies' protection is large.
Subsidy reforms, bailouts and growth [coming soon]