Endogenous technology diffusion

In the first chapter of my thesis, I analyse the role of endogenous technology diffusion in explaining the positive correlation between trade and growth that we observe in the data. In the last decade, some countries in Asia and Europe grew much faster than average, and experienced a significant increase in the variety of goods that they import. At the same time, their investment in R&D is low. I propose a general equilibrium model of innovation and international diffusion to analyse the connections between trade in varieties and economic growth. Trade is the vehicle of diffusion. The model is fitted to Asia, Europe, Japan and the US. Using disaggregated trade data, and data on innovation and output growth, I estimate the model with Bayesian techniques. I then decompose the sources of productivity growth in each region. The results show that 90% of growth in Asia is explained by imports from the US and Japan. These two regions are also the main sources of foreign technology for other regions in the model. Finally, I carry out counterfactual analysis.;In the second chapter of my thesis, we explore the effect of endogenous technology diffusion in a standard RBC setting. We develop a model in which innovations in an economy's growth potential are an important source of business fluctuations. The framework shares the emphasis of the recent "new shock" literature, but differs by tieing these beliefs to fundamentals of the evolution of the technology frontier. An important feature of the model is that the process of moving to the frontier involves costly technology adoption. In this way, news of improved growth potential has a positive effect on current hours. The model also has reasonable implications for stock prices. We estimate our model for data post-1984 and show that the innovations shock accounts for nearly a third of the variation in output at business cycle frequencies. The estimated model also accounts reasonably well for the large gyration in stock prices over this period. Finally, the endogenous adoption mechanism plays a significant role in amplifying other shocks.