Research

Incremental Innovation, Disruptive Innovation and Economic Growth (with Pietro F. Peretto), SSRN Working Papers 5249292, Listen to the Podcast.

In this paper, we develop a tractable dynamic general equilibrium model that integrates incremental and disruptive innovation. We incorporate creative destruction into a growth framework with endogenous market structure and incremental innovation by incumbents. We then analyze industries where a dominant firm coexists with a competitive fringe. The incumbent temporarily dominates the market, accumulating industry-specific knowledge, while disruptive innovation reshapes the industry, triggering what we call dominance cycles. Our analysis highlights how incremental and disruptive innovation interact: while incremental innovation reinforces market dominance, it also sets the stage for disruptive breakthroughs. The model captures documented empirical patterns, showing how higher fixed operating costs lead to greater market concentration and slower dominance turnover—ultimately weakening industry dynamism and reducing aggregate productivity growth.

AI Innovation and the Labor Share in European Regions (with Klaus Prettner and Francesco Venturini), European Economic Review, vol. 177, August 2025, 105043.

This paper examines how the development of Artificial Intelligence (AI) affects the distribution of income between capital and labor, and how these shifts contribute to regional income inequality. To investigate this issue, we analyze data from European regions dating back to 2000. We find that for every doubling of regional AI innovation, the labor share declines by 0.5% to 1.6%, potentially reducing it by 0.09 to 0.31 percentage points from an average of 52%, solely due to AI. This new technology has a particularly negative impact on high- and medium-skill workers, primarily through wage compression, while for low-skill workers, employment expansion induced by AI mildly offsets the associated wage decline. The effect of AI is not driven by other factors influencing regional development in Europe or by the concentration of the AI market.

Medical Innovation, Life Expectancy, and Economic Growth (with Michael Kuhn, Klaus Prettner and Francesco Venturini), SSRN Working Papers 4491818, Listen to the Podcast.

Despite the increasing recognition of the importance of health for economic growth, the role of medical innovation in this process remains largely unexplored. Specifically, what are the causal effects of medical innovation on economic growth, and what shape does this relationship take? To address these questions, we propose an R&D-based economic growth model with overlapping generations, wherein life expectancy depends on healthcare utilization and medical innovation, and we then empirically test the model’s implications. Our findings reveal a clear causal pathway from medical innovation to economic growth, with increasing life expectancy serving as a key transmission channel. In the early stages of development, medical innovation does not have a positive effect on economic growth, whereas  in intermediate stages, a positive and significant effect emerges. In late stages of development, where life expectancy is already very high, the effect becomes weaker and potentially negative because health improvements are increasingly difficult to achieve and become more resource-intensive.

Declining Research Productivity and Income Inequality: A Centenary Perspective (with Jakob B. Madsen and Francesco Venturini), Journal of Economic Dynamics and Control, vol. 167, October 2024, 104924.

Research productivity has been sharply declining since 1920. This decline has significant implications for inequality. Using an open-economy Schumpeterian growth model, we show that domestic research productivity influences income inequality through two opposing forces: a positive effect from increased asset returns and a negative effect from the erosion of innovation rents through creative destruction. In contrast, foreign research productivity affects inequality solely through the asset returns channel. By constructing a long historical data series for 21 OECD countries, we find that the asset returns channel has been the dominant driver of inequality over the past century. The reduction in both domestic and foreign R&D productivity accounts for 25% to 35% of the observed downward trend in income inequality over this period.

Innovation and the post-WWII World’s Growth Process: Insights on the Mechanisms at Work (with Guido Cozzi and Francesco Venturini), SSRN Working Papers 4182392.

Based on the main insights of Schumpeterian growth theory, this paper investigates which R&D-based mechanism is better suited for explaining the pattern of world’s productivity growth. Using post-WWII data for a global sample of 115 countries, we estimate the relationship between productivity growth and the semi-endogenous and fully-endogenous growth components. We show that the semi-endogenous mechanism, based on the assumption of diminishing returns to knowledge, is the prevailing force and accounts for a larger share of world’s productivity growth.

Price Signaling with Salient-thinking Consumers  (with Elias Carroni and Andrea Mantovani), Games and Economic Behavior, vol. 138, March 2023, pp. 238-253.

This paper examines the signaling role of prices in a context of salient thinking. Consumers cannot observe product quality directly, and they focus on the product attribute – either quality or price – that stands out in the market. Our analysis shows that salience considerations mitigate the incentive to signal quality via price. Moreover, depending on the difference in quality between products, the separating price of the high-quality seller can be inflated or deflated in relation to a set-up of rational consumers. Our findings indicate that certain ways of setting prices for experience goods can be explained by combining price signaling with salient thinking.

The Long-run Investment Effect of Taxation in OECD countries (with Jakob B. Madsen and Francesco Venturini), Economica, vol. 90, No. 358, April 2023, pp. 584-611.

The gradually changing nature of production and the move away from tangible investment towards intangible investment over the past century suggests that the effects of the tax structure on investment need to be reassessed. To address this issue, we establish an endogenous growth model in which investment in tangible assets, R&D and education are influenced by different types of taxes. We test the long-run  implications of the model using annual data for 21 OECD countries over the period 1890-2015. We find that corporate taxes reduce investment in tangible assets and R&D. However, while personal income taxes reduce investment in tertiary education, they enhance the investment in R&D. Thus, a revenue-neutral switch from corporate to personal income taxes is growth enhancing. 

Wealth Inequality in the Long Run: a Schumpeterian Growth Perspective (with Jakob B. Madsen and Francesco Venturini), Economic Journal, vol. 131, No. 633, January 2021, pp. 476-497.

This paper extends the analysis of the wealth-income ratio based on the neoclassical model in a Schumpeterian growth framework in which savings are channelled to both tangible and intangible capital investment. Using historical data for 21 OECD countries over the period 1860-2015, we find that the wealth-income ratio and, hence, wealth inequality, is negatively related to the rate of economic growth and positively related to the rates of investment in intangible and tangible assets, as predicted by the theory. Accounting for the innovation-induced counteracting growth-effect on the wealth-income ratio, we show that the net effect of investment in intangibles on wealth inequality is positive. Our estimates suggest that intangibles have been a contributing factor in wealth inequality since 1860 and that the marked increase in the investment in intangible assets in the post-WWII period has been a significant driver of wealth inequality since the 1970s. 

Multinationalization and the Scope of Innovation (with Sasan Bakhtiari and Alireza Naghavi), Industrial and Corporate Change, vol. 28, No. 5, October 2019, pp. 1057–1077.   

This research sheds light on how offshoring affects the quality of patents by firms. Patents applicable to diverse technology fields are considered to be of higher quality because they open the way for follow-up research and inventions. Using a matched firm-patent dataset, we apply the generality measure of patent citation to investigate the effect of offshoring on the extent to which patents registered by firms are spread across different product lines. We find that offshoring is generally associated with patents of lower quality. However, engaging in more international activities increases the quality of patents by firms with a more diversified portfolio of products. The finding is robust to various specifications and sampling tests.

Offshoring, Product Scope and Firm Performance (with Sasan Bakhtiari and Alireza Naghavi), in W. Kohler and E. Yalcin, Eds., New Developments in Global Sourcing, MIT Press, Cambridge, 2018. 

Assessing Piketty's Second Law of Capitalism (with Jakob B. Madsen and Francesco Venturini), Oxford Economic Papers, vol. 70, January 2018, pp. 1-21 (lead article).

This paper assesses Piketty's second fundamental law of capitalism to investigate patterns and determinants of wealth inequality over the last century and a half. We first discuss the foundations of this theory on the basis of the most popular growth models, and then perform a long-run regression analysis of wealth inequality using Piketty and Zucman's data and a new historical dataset for the OECD countries covering the period 1870-2010. We find that the wealth-to-income ratio is significantly related to the ratio between the saving rate, s, and the rate of income growth, g, between 1870 and 2010. The estimated coefficient for the s/g ratio ranges  from 0.05 to 0.18, depending on the specification, while the theory predicts a unitary value. It is also shown that the wealth-to-income ratio responds to the variations in income growth much more than to variations in the saving rate. 

R&D Policy, Productivity Growth and Distance to Frontier (with Francesco Venturini), Economics Letters, vol. 156, July 2017, pp. 92-94.

Using data from 20 US manufacturing industries, we find strong evidence that a more generous tax treatment of R&D positively impacts on the growth rate of total factor productivity and that this effect is stronger for industries farther from the technological frontier. The estimates also suggest that the productivity growth effect of R&D tax policy is comparable in size to that induced by technology transfers.

The Long-run Growth Effects of R&D Policy (with Francesco Venturini), Research Policy, vol. 46, February 2017, pp. 316-326.  

We assess the long-run growth effects of public policies to business R&D using data for US manufacturing industries and taking Schumpeterian growth theory as guideline. Our analysis indicates that R&D policy in the form of R&D tax credits fosters the rate of economic growth over the long-term horizon. This effect is quantitatively important: increasing R&D tax credits by 10 percent raises the rate of economic growth by 0.4 percent per year. We show that our findings are robust to controlling for several policy instruments, growth determinants and econometric issues. The overall evidence is consistent with the predictions of second-generation fully-endogenous growth models.

Training and Product Quality in Unionized Oligopolies (with Emanuele Bacchiega),  Economica, vol. 82, December 2015, pp. 1261-1301.

In this paper we analyse the private and public incentives towards skill acquisition when the skill level of workers determines the quality level of goods, and both labour and product markets are non-competitive. We show that both ‘pure’ (set by either firms or unions only) and ‘mixed’ (set by firms and unions) training scenarios may emerge at equilibrium. We show that firms have generally greater training incentives than unions, resulting in a higher product quality. Our welfare analysis shows that both unions and firms underinvest in training in comparison with the social optimum.

Multi-product Firms and Business Cycle Dynamics (with Francesco Turino), European Economic Review, vol. 57, January 2013, pp. 75-97. 

Recent empirical evidence provided by Bernard et al. (2010) and Broda and Weinstein (2010) shows that a significant share of product creation and destruction in U.S. industries occurs within existing firms and accounts for an important share of aggregate output. In the present paper, and consistent with this evidence, we relax the standard assumption of mono-product firms in a dynamic stochastic general equilibrium model. Our analysis is based on a model of firm dynamics with two deviations from the conventional real business cycle framework - imperfect competition with endogenous entry and multi-product firms. The combination of these two features enables our model to successfully generate a mechanism that accounts for the strong procyclicality of product creation. Due to the proliferation effect induced by firm-level adjustments in product scope, we show that our model embodies a quantitatively important magnification mechanism of aggregate shocks.

A Schumpeterian Growth Model with Random Quality Improvements (with Carmelo Parello and Paul S. Segerstrom), Economic Theory, vol. 52, March 2013, pp 755-791.

A common assumption in the Schumpeterian growth literature is that the innovation size is constant and identical across industries. This is in contrast with the empirical evidence which shows that: (1) innovation size is not identical across industries and (2) the size distribution of profit returns from innovation is highly skewed toward the low value side, with a long tail on the high value side. In the present paper, we develop a Schumpeterian growth model that is consistent with this evidence. In particular, we assume that when a firm innovates, the size of its quality improvement is the result of a random draw from a Pareto distribution. This enables us to extend the class of quality-ladder growth models to encompass firm heterogeneity. We study the policy implications of this new setup numerically and find that it is optimal to heavily subsidize R&D for plausible parameter values. Although it is optimal to tax R&D for some parameter values, this case only occurs when the steady-state rate of economic growth is very low.

The Quality-Income Effect and the Selection of Location  (with Emanuele Bacchiega), Journal of Urban Economics, vol. 65, No. 2, March 2009, pp. 209-215.

We analyze a location-choice model with two vertically differentiated firms and two regions with different consumer income. We find that the high-quality producer settles in the poor region and the low-quality one in the rich region when income disparities are sufficiently high and goods are differentiated enough. This apparently counter-intuitive result is not determined by technology or size issues; rather, it relies on the relationship between regional income disparities and product quality, which we call the “Quality-Income effect.”