CSH Talk by Roberta Terranova “Mind the Knowledge Gap! The Origins of Declining Business Dynamism in a Macro Agent-Based Model”

Roberta Terranova (European Institute on Economics and the Environment) will present a talk on Wednesday, November 29th, from 3 – 4 PM in Room 201.

Title: Mind the Knowledge Gap! The Origins of Declining Business Dynamism in a Macro Agent-Based Model

Abstract: In this paper, we replicate most of the stylized facts characterizing the decline in business dynamism in the USA highlighted by Akcigit and Ates (2021) and provide an explanation of their emergence by means of a macroeconomic agent-based model populated by two types of firms: innovators who generate new and more productive capital goods, and entrepreneurs who employ labor and capital goods to produce consumption goods. A key ingredient of the model is the assumption that the entrepreneurs’ access to new and better capital goods depends on the knowledge gap, i.e., the wedge between the firm’s technical knowledge and the state of

technology embodied in new capital goods. Within this framework, we investigate the obstacles to knowledge diffusion leading to declining business dynamism. Our findings indicate that only when knowledge diffusion decreases in technology imitation and adoption processes does it lead to high market concentration and markups, falling labor share, and productivity growth. Patents are an important obstacle to knowledge diffusion. We find an inverse U-shaped relationship between patent strength and growth: moderate levels of patent protection can stimulate growth, but strong protection leads to rising market power and slower growth.

Bio: Roberta Terranova is a junior scientist at the European Institute on Economics and the Environment (EIEE). At EIEE she contributes to the SMOOTH and the CAPABLE projects, focusing on the role of heterogeneous expectations, policy credibility, and political economy aspects of the low-carbon transition. She also works on macroeconomic agent-based models to study the role of firms’ concentration, innovation, and growth. She holds a double Ph.D. degree from Bielefeld University and the University of Surrey, as part of the European Joint Doctorate “ExSIDE”, funded by the European Union’s Horizon 2020 research and innovation program under the Marie Sklodowska-Curie Actions.