Speaker: Ernest Liu (Princeton University)

Time: 9:00-10:30 am, March 31, 2023, GMT+8

Venue: Zoom Meeting ID: 969 9017 4936 Passcode: inse

Abstract:

We study the cross-sector allocation of R&D resources in a multisector growth model with an innovation network, where one sector’s past innovations may benefit other sectors’ future innovations. Theoretically, we solve for the optimal allocation of R&D resources. We show a planner valuing long-term growth should allocate more R&D toward central sectors in the innovation network, but the incentive is muted in open economies that benefit more from foreign knowledge spillovers. We derive sufficient statistics for evaluating the welfare gains from improving R&D allocation. Empirically, we build the global innovation network based on patent citations and establish its empirical importance for knowledge spillovers. We evaluate R&D allocative efficiency across countries using model-based sufficient statistics. Japan has the highest allocative efficiency among the advanced economies. For the U.S., improving R&D allocative efficiency to Japan’s level could generate more than 19.6% welfare gains.

Biography:

Professor Ernest Liu is an assistant professor in Princeton's Department of Economics. His research interests include finance, networks, growth, trade, and macro-development. One strand of his work uses network theory to study linkages across economic sectors, technological classes, and countries, and the implication of such linkages for policy. Another strand of work shows how low, long-term interest rates affect market concentration and productivity growth; how banks with market power respond to interest rate ceilings in small business lending; and, how financial market imperfections not only distort economic allocations via underinvestment but may greatly amplify effects due to interactions across economic sectors or because the relationships between borrowers and lenders create under-development traps. He received his Ph.D. in Economics from MIT in 2017 and joined Princeton’s faculty in 2019. His research papers have been published in top finance and economics journals, including Quarterly Journal of Economics, Journal of Financial Economics, Econometrica, and Review of Financial Studies.

Source: Institute of New Structural Economics