Sectoral fiscal multipliers and technology in open economy

Olivier Cardi and Romain Restout

Journal of International Economics, 2023, vol. 144, issue C

Abstract: Our evidence reveals that the rise in real GDP is uniformly distributed across sectors following a government spending shock while labor growth is concentrated in non-traded industries. A rationale behind these two findings lies in technology which responds endogenously to the government spending shock. While technology improvements are concentrated in traded industries, technological change is biased toward labor (capital) in non-traded (traded) industries. To account for our evidence, we consider a semi-small open economy model with tradables and non-tradables where both capital and technology can be used more intensively. While financial openness amplifies the biasedness of the demand shock toward non-traded goods, labor mobility costs, imperfect substitutability between home- and foreign-produced traded goods and endogenous capital utilization are necessary conditions for giving rise to traded technology improvement. The model can reproduce the size of fiscal multipliers once we let technology adjustment costs together with factor-biased technological change vary across sectors.

Keywords: Sector-biased government spending shocks; Endogenous technological change; Factor-augmenting efficiency; Open economy; Labor reallocation; CES production function; Labor income share (search for similar items in EconPapers)
JEL-codes: E25 E62 F11 F41 O33 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: Sectoral fiscal multipliers and technology in open economy (2023)
Working Paper: Sectoral Fiscal Multipliers and Technology in Open Economy (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:144:y:2023:i:c:s0022199623000752

DOI: 10.1016/j.jinteco.2023.103789

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