NATIONAL BUREAU OF ECONOMIC RESEARCH
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Uncertainty-Induced Reallocations and Growth

Ravi Bansal, Mariano Max Croce, Wenxi Liao, Samuel Rosen

NBER Working Paper No. 26248
Issued in September 2019
NBER Program(s):The Asset Pricing Program, The Economic Fluctuations and Growth Program, The Productivity, Innovation, and Entrepreneurship Program

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.

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Document Object Identifier (DOI): 10.3386/w26248

 
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