general purpose technologies (gpts) and their relevance to ... · “general purpose technologies...

“General Purpose Technologies (GPTs) and their Relevance to ICTs; Trade & Growth Implications”

byIordanis Petsas

4/3/2009

March 2009

General Purpose Technologies General Purpose Technologies (GPTs) and their Relevance to ICTs;(GPTs) and their Relevance to ICTs;(GPTs) and their Relevance to ICTs; (GPTs) and their Relevance to ICTs;

Trade and Growth ImplicationsTrade and Growth Implications

ByBy

Presented at CITI, Columbia Business SchoolPresented at CITI, Columbia Business SchoolMarch 2009March 2009

By By IordanisIordanis PetsasPetsas

University of Scranton and Baruch College (CUNY)University of Scranton and Baruch College (CUNY)

Introduction and MotivationIntroduction and Motivation

Why ICT sectors are important for growth and trade?

What ICT policies are welfare improving and boost economic growth and trade?

Iordanis Petsas GPTs, ICTs, Growth & Trade


byIordanis Petsas

4/3/2009

March 2009

Introduction and MotivationIntroduction and Motivation

Schumpeterian GrowthIncremental vs. Drastic Innovations

General purpose technologies (GPTs) are characterized by: the pervasiveness in use (generality of purpose),


innovational complementarities Bresnahan and Trajtenberg (1995)

The Transistor (1947)The Transistor (1947)The 1st

sector to adopt the

The 2nd sector to adopt transistors

was transistor

The 3rd

sector to adopt the

The 4th

sector to adopt the

The 5th sector to adopt the transistor was thep

transistor was hearing aids.

radios, which also became the first transistor-based mass consumer

product.

adopt the transistor was computers.

adopt the transistor was automobiles.

was the telecommunications industry.

Early 1950’s 1955 1990’s1954 1970’s

General Purpose Technologies


byIordanis Petsas

4/3/2009

March 2009

Computer TimelineComputer Timeline(5 generations of modern computers)

4th generation computers(used LSI,

VLSI ULSI

1st generation computers

(used vacuum tubes)

2nd generation computers

(used transistors)

3rd generation computers

(used integratedi it )

5th generation computers

(use of S dVLSI, ULSI,

and microprocessors)

circuits) Superconductors and

optic fibers)

1945 - 1955 1955 - 1963 1964 - 1971 1971 - Present Present andBeyond


Relative Prices of Computers and Semiconductors, 1959- 1999

100 000All price indexes are divided by the output price index.

1

10

100

1,000

10,000

100,000

Log

Scal

e (1

996=

1)


0

0

1959 1964 1969 1974 1979 1984 1989 1994 1999

Computers Memory Logic

0.1

0.



byIordanis Petsas

4/3/2009

March 2009

Literature Review on GPTsLiterature Review on GPTsHelpman and Trajtenberg (1994)Aghion and Howitt (1996)Erikson and Lindh (2000)Chung (2002)

The above papers predict that long-run growth does not occur, unless new general purpose technologies continue to arrive.Th l hibit th l ff t t


They also exhibit the scale effects property.In addition, these papers develop models where GPTs generate growth cycles, and the duration of these cycles depends on the size of the economy.

Number of Scientists and EngineersNumber of Scientists and Engineers

(R&D resources have increased roughly exponentially over time)(R&D resources have increased roughly exponentially over time)(R&D resources have increased roughly exponentially over time)(R&D resources have increased roughly exponentially over time)



byIordanis Petsas

4/3/2009

March 2009

Real Per Capita GDP in the United States (1870Real Per Capita GDP in the United States (1870--1994)1994)

(U.S. per capita income growth is roughly constant over time)(U.S. per capita income growth is roughly constant over time)


Outline of the Rest of the PresentationOutline of the Rest of the Presentation

The Model: An OverviewSteady-State EquilibriaTransitional DynamicsImplications of the Model


Future Research


byIordanis Petsas

4/3/2009

March 2009

The Model: An OverviewThe Model: An Overview

A continuum of identical households with

There is a continuum of industries indexed by producing ]1,0[∈θ

infinitely lived members.Each household is a dynamic family whose size grows

at the rate of population growth.


final consumption goods.Innovation takes the form of higher quality products discovered through R&D races.

Diffusion of a New GPTDiffusion of a New GPT

dtdηAdo

pter

s

y

dtdη

η = 1/(1+ e-(ϕ+δt))

)1(dtdη−δ=

ηη

where dtdη denotes the change h f i f i d i h

Inno

vato

rs Early

A

Early

Maj

ority

Late

Maj

ority

Lagg

ards

Time1=η

on the fraction of industries that uses the new GPT through the time and δ > 0 is the speed of diffusion.

The Logistic Curve Time

5.0=η

Slide 12General Purpose Technologies


byIordanis Petsas

4/3/2009

March 2009

Preview of Main ResultsPreview of Main Results

The model generates endogenous long-runThe model generates endogenous long run Schumpeterian growth without scale effects.

The evolution of per-capita GNP exhibits transitional growth cycles.


The country with the new GPT will enjoy comparative advantage in a greater range of industries compared to the country with the old GPT.

E h h h ld i i i di d ili

Household BehaviorHousehold Behavior

Each household maximizes its discounted utility

dt)t(ulogeU0

t)Ng(∫=∞ −ρ−

The subutility u(t) is defined by the following equation:


1

0

log ( ) log[ ( , , )]j

u t q j t dλ θ θ≡ ∑∫

y ( ) y g q


byIordanis Petsas

4/3/2009

March 2009

Consumer’s ProblemConsumer’s Problem

The solution to the consumer’s maximizationThe solution to the consumer s maximization problem yields

)t,,j(p)t(c)t,,j(qθ

=θ

.


ρ−= )t(r)t(c)t(c

and.

Firm BehaviorFirm Behavior

Each firm in each industry uses labor to produce y pits final good

ςiQ

iiς γ)θ(α

)t,θ(L)t,θ(Q =



byIordanis Petsas

4/3/2009

March 2009

P t th i f

Productivity Gains with a new GPTProductivity Gains with a new GPT

Parameter measures the size of productivity gains associated with the new GPT

ζγ

⎪⎪⎨⎧ ∈∀=

=]η,0[θ1γγ

γ1

ς

p


⎪⎩⎨

∈∀= ]1,η[θ1γγ

0

ς

Firm BehaviorFirm Behavior

Following Dornbusch et al (1977) the relative

)()(

)(θθα

θ h

fQA ≡

Following Dornbusch et al. (1977), the relative labor unit requirement for each good is given by


)()(

θα hQ

0)(A <θ′


byIordanis Petsas

4/3/2009

March 2009

Knowledge CreationKnowledge Creation

Each industry in county i produces R&D services under the constant returns to scale production function

R

iRi tLtRαθθ ),(),( =

θ


where Rα is the unit labor requirement in the R&D production.

R&D RacesR&D Races

A challenger k located in country i invests in R&D discovers the next higher-quality product withdiscovers the next higher-quality product with instantaneous probability

The industry-wide probability of innovating is)(

),(),(tX

tRtIiki

kθθ =

∑i

ii tRII ),()()( θθθ


∑ ==k

ik

i

tXtItI

)(),(),(),( θθ

The global rate of innovation in a typical industry is given by

∑ θ=θi

i )t(X)t,(R)t,(I


byIordanis Petsas

4/3/2009

March 2009

R&D RacesR&D Races

I follow Dinopoulos and Segerstrom (1999) and assume that the level of R&D difficulty is given by

X(t) = kN(t)


SteadySteady--State EquilibriumState Equilibrium

Real per capita income, u(t), is given by

λ−λθ+α−= loglogt)t,(Ilogclog)t(ulog Q

The long-run Schumpeterian growth is given by


λγθ ς log]/),([)(

/ tItudtdugu ==

The long run Schumpeterian growth is given by


byIordanis Petsas

4/3/2009

March 2009

Steady-State Equilibrium Before the Introduction of the New GPT(Figure 1)

θ

θα=θ=ω

)~()~(

)~(RD h

fQ

MR (θ)

RD (θ)

Aω

ω

1

)(~

~)()~1()~(

NRh

NR

f

gkN

gkN

MR−+

−+−==

ραθ

θραθθω


ζγθα )(hQ

1θ~ θ0

1

45°

η

Steady-State Equilibria (Figure 2)

ω

ζγθα

θα=θ=ω

)~()~(

)~(RD hQ

fQ

ω

MR (θ)

A

RD (θ)ω

1

Bω´´

RD´ (θ)

)(~

~)()~1()~(

NRh

NR

f

gkN

gkN

MR−+

−+−==

ραθ

θραθθω


ζQ

θθ~ 10

45°

η θ ′′~


byIordanis Petsas

4/3/2009

March 2009

Transitional Dynamics (Figure 3)Transitional Dynamics (Figure 3)

dtdη

B

Saddlepath

θ~

θ~ ′′

A´θ′~

)1(dtdη−δ=

ηη


1 η0

Aθ~

The Effects of a GPT on the The Effects of a GPT on the Stock MarketStock Market

Vg

Ng


10 Fraction of Industries with the new GPT


byIordanis Petsas

4/3/2009

March 2009

StockStock--Market Value Relative to GDPMarket Value Relative to GDP

total value of shares

CRSP


C S

1950 19801960 19901970 2000year

Implications of the ModelImplications of the Model

The present paper develops an analytical framework without e p ese t pape deve ops a a a yt ca a ewo w t outscale effects to determine the effects of GPT diffusion on the equilibrium relative wages and the pattern of trade between countries.

No real and sustained improvements in welfare (both in economic growth and trade) will be achieved without

ti i t i th ICT d ICT l t d t


continuous improvement in the ICT and ICT related sectors.

Governments need a multi-disciplinary approach embracing technology, laws, infrastructure, and public policy.


byIordanis Petsas

4/3/2009

March 2009

Future ResearchFuture Research

Trade instruments and their effect on the pattern of trade between countries.

International GPT diffusion


GPT diffusion and wage-income inequalitySkilled versus unskilled Labor

general purpose technologies (gpts) and their relevance to ... · “general purpose technologies...

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