Research
Publications:
Óscar Afonso & Ana M. Bandeira & Manuela Magalhães, Labour-market institutions, (un)employment, wages and growth: theory and data, forthcoming in Applied Economics.
Abstract: We analyse the implications of labour-market institutions on wage inequality in favour of skilled labour, on relative unemployment of unskilled labour, and on the economic growth rate in two clusters resulting from 27 OECD countries: Cluster 1, closely related with the Anglo-Saxon model, and Cluster 2 , dominated by the Continental-European model. By linking the unskilled wage to the skilled one in Cluster 2 , due to the indexation of social benefi.ts to per-capita income, we accommodate the observed paths of the three variables in both clusters between 1991 and 2008: Cluster 1 presents a higher wage inequality in favour of skilled labour, a lower unemployment of the unskilled labour, and a better economic growth rate. Keywords: Labour-market institutions, (un)employment, wage inequality, endogenous economic growth, calibration.
A multi-sector growth model with technology diffusion and networks, with Óscar. Afonso forthcoming in Research Policy.
Abstract: This paper adds the production network into a multi-sector endogenous growth model to analyze the respective effects on technology adoption and thus on economic growth. In particular, we show that the higher the network degree, the higher is TFP and the stronger is the impact on extensive and intensive margins; hence, more likely is technology adoption and economic growth. Therefore, distinct cross-country network structures explain inter-country income differences. We then estimate the model and confirm theoretical findings: e.g., the network degree and technology invention year can together explain 81% of the technology adoption lag variation (extensive margin), the network degree can explain 9% of the intensive margin variation, and the inverse-network degree and the relative intensive and extensive margins together account for approximately 31% of the inter-country income differences.
Effect of the tax system on R&D intensity, growth, wages and consumption share, with Oscar Afonso and Ana Maria Bandeira., forthcoming in Australian Economic Papers.
Abstract: We propose a general equilibrium knowledge-driven (semi-)endogenous growth model with horizontal R&D, which is extended to consider two types
of labour, skilled and unskilled, and exogenous government expenditure, financed through taxes on financial assets and on labour income, to analyse
the implications of the tax system on R&D intensity, economic growth, wage inequality and consumption share in the output. In particular, we show that:
(i) taxes have negative influence in the consumption share, being higher the marginal effect of the labour-income tax; (ii) for any given government expenditure
share, an increase (a decrease) in financial-assets tax decreases (increases) the labour-income tax; (iii) only the financial-assets tax affects
negatively the R&D intensity and the skill premium; thus, to reduce the skill premium the financial-assets tax must increase; (iv) ignoring the effect on
wage inequality and on R&D intensity, taxes are substitutes.
• Technological Diffusion and its effects on Social Inequalities, with Hellström, C., Journal of Macroeconomics, Vol. 37, September 2013,
Pages 299-313. Doi: 10.1016/j.jmacro.2013.05.008
Abstract: We develop a neo-Schumpeterian model, in which growth is driven by the appearance of a new technology and a sequence of quality-improving innovations. This paper is a first attempt to approaching technological diffusion and its effects on social inequalities in a general-equilibrium model, with growth due to skill-biased technological diffusion, heterogeneous agents, consumption, and leisure-labor decisions. Our results are consistent with the data for the skill premium for the US. In addition, we provide an explanation for the increase in skilled professionals over the last thirty years.
[Matlab code]: This zip folder contains Matlab files to solve a non-stationary dynamic general equilibrium with heterogeneous agents and skill-biased technology diffusion.
Working Papers :
• How powerful are network effects? A skill-biased technological change approach, with Oscar Afonso.
Abstract:The generic rise in the skill premium in face of the relative increase in skilled workers since the 1980s seem a little puzzling. The skill-biased technological change literature attempts to work out with this puzzle. However, it stresses the market-size effect on technological-knowledge change, contradicting the dominant literature on scale effects, and empirically the steadily increasing trend in the relative skilled-labor supply has been concomitant with distinct dynamics of the skill premium. We develop a general equilibrium endogenous growth model that allows the dominance of either the price channel or the market-size channel mechanism through which network spillovers affects the technological-knowledge bias and, thus, the paths of intra-country wage inequality. The proposed mechanisms can accommodate facts not explained by the previous literature.
• Long-run sustainability in the green Solow model, with Maria D. Guillo (in progress)
Abstract: We extend the Green Solow model of Brock and Taylor (JEG 2010) by including a natural input (land) into the production function and a rate of technological progress in abatement that depends on the economy's pressure on land quality. We obtain a necessary and sufficient condition for sustainability that establishes a limit on the net degree of land degradation and erosion below which is not possible to sustain land quality and a permanent decreasing level of emissions. This condition establishes an important relationship between the rates of technical progress and some parameters of the model that are directly connected to the economy's efforts in abatement and land quality saving, creating a potential tension between these two elements of environmental policy.
• Efficiency and Shadow Pricing in the presence of bad outputs: A multi-sector analysis, with E. Silva, UP. (in progress)
This study researches the eco-efficiency and productivity performance, using directional environmental distance functions
• Directed technological change and intellectual property rights, with Óscar. Afonso
Abstract: We propose a directed technical change model between sectors tradable and nontradable and with two countries, Innovator and Follower. The former performs innovative R&D and the latter adopts the available technological knowledge. The degree of substitutability between sectors, of scale effects and of international IPRs protection, as well as the R&D productivity determine the economic growth rate and the technological-knowledge bias, which, in turn, affects relative prices and wages. Theoretical results are confirmed by a calibrated exercise for 11 developed/Innovator countries and 11 developing/Follower countries. The main macroeconomic variables depend on parameters and exogenous variables of both countries. In general, (i) wages are higher in the Innovator, namely in the nontradable sector under substitutability; (ii) technological-knowledge and intra-country wage inequality are biased towards the tradable sector, being the effect reinforced by IPRs protection; (iii) the real exchange rates accommodates the Balassa-Samuelson result and increases with IPRs protection and substitutability.
• The US inter-sector network dynamics and its effects on technology adoption.
Abstract: In the second half of the twenty century the U.S. economy has gone through important transformations both in terms of production and network structure between sectors but also in terms of technology adoption. In this context, using a network perspective we question how these changes in the inter-sector network structure have influenced the process of technology adoption? In order to answer this question we map Input-Output Use Tables from the period 1945-1995 into a weighted directed network. Among other results, we found clear evidence of global (but not local) network structure effects in the intensity of technology adoption. High network betweenness is associated with a greater appropriation of the technology adoption benefits. Consequently, it incentives
the adoption of more sophisticated and productive technologies. On the other hand, high relative network closeness is associated with a weaker appropriation capacity. Consequently, it provides stronger incentives for the adoption of basic and cheaper technologies. The existing tradeoffs and their implications for the technology policy are also considered.
• Redistribution in Periods of Technological Diffusion, with Tiago Sequeira.[PDF][Slides][Poster]
Abstract: This paper analyses the effectiveness of redistributive policies in an economy where technological advancements diffuse through the economy given firms adoption rates. We build a micro- founded general equilibrium model with skill-biased technological diffusion, endogenous labor supply, schooling decisions and two redistributive policies, namely lump-sum transfers and education subsidies. Measuring the effectiveness of these policies by the reduction in the skill premium, lump-sum transfers are ineffective and education subsidies are effective. We show that, under endogenous schooling decisions, lump-sum transfers raise the skill-premium, particularly during economic expansions and in the long-run, and reduces social welfare for almost all of the business cycle. However, education subsidies decrease the skill premium as they clearly incentivize investment in education, raising skill supply pushing the premium down. Investment in education tends to be counter-cyclical. On the one hand, forward-looking individuals anticipate the increase of demand for skills during an economic boom thus increasing their investment in education during recessions. However, they also anticipate the eventual decay of the technology diffusion, reducing their investment in education accordingly during the economic expansion. Finally, we show that education subsidies are Pareto efficient, increasing welfare of both high and low-skilled individuals.
[Matlab Code]: This zip folder contains Matlab files to solve a non-stationary dynamic general equilibrium in a redistributive economy. It also includes routines for IRF and Welfare analysis.
• Effects of Technological Progress and Knowledge Dynamics on the Diffusion of a Skill-Biased Technology.
Abstract: This paper presents a two-sector growth model that explains the adoption of a skill-biased technology. There are two types of technology: low-tech and high-tech, and the latter is more productive and skill-biased. Technology is not embodied. To adopt high-technology, users must pay an instantaneous adoption cost, which decreases over time due to technological progress. Firms are homogeneous and act strategically, maximizing their profits given their rivals' behavior, leading to a technology sequential adoption pattern due to stock effects. We found that the decrease of the adoption cost and the increase of the technological knowledge due to learning effects lead to an increasing technology diffusion over time. The former has a constant effect over time, but for the latter, although positive, the effect is not constant, changing the speed of the technology diffusion over time.
Publications:
Technological Diffusion and Its Effects on Social Inequalities, with Hellstrom, C., Journal of Macroeconomics, Vol. 37, September 2013, Pages 299-313. Doi: 10.1016/j.jmacro.2013.05.008