Big Push in Distorted Economies; Professor Francisco BUERA (Washington University in St. Louis.)

Abstract

Why don't poor countries adopt more productive technologies? Is there a role for policies that coordinate technology adoption? To answer these questions, we develop a quantitative model that features complementarity in firms' technology adoption decisions: The gains from adoption are larger when more firms adopt. When this complementarity is strong enough, multiple equilibria and hence coordination failures are possible. More important, even without equilibrium multiplicity, the model elements responsible for the complementarity substantially amplifies the effect of distortions and policies. In what we call the Big Push region, the impact of idiosyncratic distortions is over three times larger than in models without such complementarity, without coordination failures playing a role. The Big Push region exists for a broad, empirically-relevant range of parameter values.

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