WORKING PAPERS

Blocking the Blockers? Defensive Investment and Aggregate Productivity, R&R JEDC

I study the effect of firms’ defensive investment on aggregate total factor productivity (TFP) in a dynamic general-equilibrium model with heterogeneous firms, where incumbents can invest to deter both imitation and entry, while entrants either enter existing product markets or lead entirely new ones. I derive a decomposition of aggregate TFP into allocative and net technical efficiency, the latter capturing average firm-level productivity and variety. I calibrate the model to U.S. Compustat data to match the joint relationships between intangible investment, firm productivity, market share, and firm size. I find that defensive investment reduces aggregate TFP by 4 percent, primarily by lowering firm-level productivity, and that higher product variety partially offsets the loss—absent which the TFP cost would double. Firm-level evidence supports the model’s predictions.

Paper

2. The Macroeconomic Effects of Defence Expenditure: Evidence from Spain (with Alloza, Domínguez-Díaz and Durá), R&R EER

We estimate the macroeconomic effects of defence expenditure using a novel dataset covering the universe of defence procurement contracts in Spain over 30 years. Our defence procurement data overcomes identification challenges posed by implementation lags inherent in traditional government spending, as contracts are awarded years before production begins and spending is recorded in government national accounts only upon delivery. Using local projections, we find that GDP effects take time to materialise, become sizeable, but remain transitory. That is, while defence investment has relevant economic consequences, these are bound to occur in the medium run insofar as the spending process is hindered by implementation lags. A DSGE model calibrated to our empirical setting yields two main findings. First, reducing implementation lags to US levels would meaningfully frontload macroeconomic effects. Second, defence spending delivers more transient and smaller long-run effects than general public investment projects.

Paper

WORK IN PROGRESS

1. Firms payouts and Innovation Under Asymetric Information (with Bonelli, Errico and Pollio)

Draft coming soon.

2. The Idea Multiplier: Government Spending in Innovation Networks (with Basso, Pozzetti and Rachedi)

Draft coming soon.

3. Defense R&D and Productivity Growth (with Basso, Pozzetti and Rachedi)

Draft coming soon.

4. Heterogeneous Firms, Rational Inattention, and the Business Cycle (with Tatsuro Senga)

Draft coming soon.