Peter J. Klenow

Misallocation and Manufacturing TFP in China and India

Resource misallocation can lower aggregate total factor productivity (TFP). We use micro data on manufacturing establishments to quantify the potential extent of misallocation in China and India compared to the U.S. Compared to the U.S., we measure sizable gaps in marginal products of labor and capital across plants within narrowly-defined industries in China and India. When capital and labor are hypothetically reallocated to equalize marginal products to the extent observed in the U.S., we calculate manufacturing TFP gains of 30-50% in China and 40-60% in India.

The Variety and Quality of a Nation's Exports

Large economies export more in absolute terms than do small economies. We use data on shipments by 126 exporting countries to 59 importing countries in 5,000 product categories to answer the question: How? Do big economies export larger quantities of each good (the intensive margin), a wider set of goods (the extensive margin), or higher-quality goods? We find that the extensive margin accounts for around 60 percent of the greater exports of larger economies. Within categories, richer countries export higher quantities at modestly higher prices. We compare these findings to some workhorse trade models. Models with Armington national product differentiation have no extensive margin, and incorrectly predict lower prices for the exports of larger economies. Models with Krugman firm-level product differentiation do feature a prominent extensive margin, but overpredict the rate at which variety responds to exporter size. Models with quality differentiation, meanwhile, can match the price facts. Finally, models with fixed costs of exporting to a given market might explain the tendency of larger economies to export a given product to more countries.

Economic growth: A review essay

Abstract The last decade has seen an explosion of research on economic growth. Based on a selective review of this literature and the recent book on Economic Growth by Robert Barro and Xavier Sala-i-Martin, we see four main challenges for future research. First, to more tightly link theory and evidence. We think a good way of achieving this would be to follow the methodology common in the business cycle literature of simulating models to compare their predictions to the data. Second, to develop new ways to empirically distinguish between competing theories of endogenous growth. Third, to develop more theories of international productivity differences. Finally, to collect detailed country data bearing on the process of technology diffusion.

Valuing Consumer Products by the Time Spent Using Them: An Application to the Internet

For some goods, the main cost of buying the product is not the price but rather the time it takes to use them. Only about 0.2% of consumer spending in the U.S., for example, went for Internet access in 2004 yet time use data indicates that people spend around 10% of their entire leisure time going online. For such goods, estimating price elasticities with expenditure data can be difficult, and, therefore, estimated welfare gains highly uncertain. We show that for time-intensive goods like the Internet, a simple model in which both expenditure and time contribute to consumption can be used to estimate the consumer gains from a good using just the data on time use and the opportunity cost of peoples time (i.e., the wage). The theory predicts that higher wage internet subscribers should spend less time online (for non-work reasons) and the degree to which that is true identifies the elasticity of demand. Based on expenditure and time use data and our elasticity estimate, we calculate that consumer surplus from the Internet may be around 2% of full-income, or several thousand dollars per user. This is an order of magnitude larger than what one obtains from a back-of-the-envelope calculation using data from expenditures.

Using Consumer Theory to Test Competing Business Cycle Models

Consumer theory suggests that expenditures on luxuries and durables should be more cyclical than expenditures on necessities and nondurables. Estimating luxuriouseness and durability for 57 consumer goods, we confirm this prediction in U.S. data. We exploit this finding to test predictions of cyclical utilization and increasing returns models of business cycles. Both models predict more cyclical productivity for durable luxuries, a prediction borne out in the data. The utilization model predicts procyclical relative prices for durables and luxuries; the increasing returns model does not. Prices are more procyclical for durables and luxuries, discriminating in favor of cyclical utilization.

Chapter 11 Externalities and Growth

Abstract Externalities play a central role in most theories of economic growth. We argue that international externalities, in particular, are essential for explaining a number of empirical regularities about growth and development. Foremost among these is that many countries appear to share a common long run growth rate despite persistently different rates of investment in physical capital, human capital, and research. With this motivation, we construct a hybrid of some prominent growth models that have international knowledge externalities. When calibrated, the hybrid model does a surprisingly good job of generating realistic dispersion of income levels with modest barriers to technology adoption. Human capital and physical capital contribute to income differences both directly (as usual), and indirectly by boosting resources devoted to technology adoption. The model implies that most of income above subsistence is made possible by international diffusion of knowledge.

Testing for Keynesian Labor Demand

According to the textbook Keynesian model, short-run demand for labor is sensitive to the demand for goods. In this view, sellers deviate from setting the marginal product of labor proportional to the real wage, instead enduring or choosing lower price markups when demand for goods is high. We test this prediction across U.S. industries in the two decades up through the Great Recession. To identify movements in goods demand, we exploit how durability varies across 70 categories of consumption and investment. We also take into account the flexibility of prices and capital-intensity of production across goods. We find evidence in support of Keynesian Labor Demand.

Industry innovation: where and why

Abstract Productivity growth and RD in equilibrium firms spend more on R&D per innovation. In contrast, technological opportunities are exploited to the point that R&D spent on the marginal innovation is equal across industries. Using data on R&D, productivity growth, and new products I find that R&D-intensive industries have fewer new products per dollar of R&D and average TFP growth relative to research intensity . The market size and technological opportunity hypotheses together can explain these facts.

Real Rigidities and Nominal Price Changes

Real rigidities can help to generate persistent effects of monetary policy shocks. We analyse an industry equilibrium model with two types of real rigidities: a ‘micro’ real rigidity from a kinked demand curve, and a ‘macro’ real rigidity due to sticky intermediate prices. We estimate key model parameters using micro data from the US CPI, which features big movements in relative prices within and across sectors. The micro real rigidity necessitates large idiosyncratic shocks to productivity. The macro real rigidity does not entail such large idiosyncratic shocks, and is consistent with the volatility of sectoral TFP growth.

Stronger protection or technological revolution: what is behind the recent surge in patenting? : A comment

Kortum and Lerner have staged a horse race worth watching. The prize is an explanation for t,he stunning rise in patent applications in the U.S. since 1985. The horses they have entered are J’riendly courts, fertile technology, and regulatory capture. Lessons for policy and implications for welfare depend on who wins. I have only a few objections to how the race was run. First, I would have allowed another horse to enter, namely, lower application cost. Second, I would not have made the race winner take all. The hypotheses are not mutually exclusive, and there are several facts that can be explained with a combination of hypotheses but not with any single hypothesis. Kortum and Lerner’s finish line consists of the following facts. (1) U.S. patent applications by U.S. inventors doubled from 1985 to 1996. (2) The U.S. application yield (share of applications resulting in a patent being granted) held steady for U.S. inventors while falling for foreign inventors. (3) Relative to foreign inventors, U.S. inventors were a rising source of applications in the U.S. and abroad. (4) The U.S. was no more popular a destination for patent applications. (5) Most of the rise in applications reflects year effects, i.e., was common to all source and destination countries. (6) The rise in U.S. applications was roughly uniform across technology classes (e.g., it was not heavily concentrated in biotechnology and software). (7) Newer and smaller patentees account for a modestly higher share of patents since the late 1980s. (8) U.S. renewai rates have declined since 1991 for U.S. and foreign inventors alike. (9) Research intensity has not risen. (10) The rise in applications since 1985 has been continuous (an upward trend, not a step function). In the accompanying Table I summarize the match between each hypothesis considered in isolation and each of the 10 facts. [The authors argue