Uncertainty-Induced Reallocations and Growth

Mariano Croce, Ravi Bansal, Wenxi Liao and Samuel Rosen

No 13964, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Focusing on both micro and aggregate U.S. data, we show the existence of a significant link between aggregate uncertainty and reallocation of resources away from R&D-intensive capital. This link is important because a decrease in the aggregate share of R&D-oriented capital forecasts lower medium-term growth. In a multi-sector production economy in which (i) growth is endogenously supported by risky R&D investments, and (ii) the representative agent is volatility-risk averse and has access to other safer technologies that do not support growth, uncertainty shocks have a first-order negative impact on medium-term growth and welfare.

Keywords: Uncertainty shocks; Reallocation; Growth (search for similar items in EconPapers)
JEL-codes: E3 E6 G18 (search for similar items in EconPapers)
Date: 2019-08
New Economics Papers: this item is included in nep-gro and nep-mac
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Citations: View citations in EconPapers (10)

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Working Paper: Uncertainty-Induced Reallocations and Growth (2019)
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