Guido Cozzi

The aim of this paper is two-fold. Firstly, we present a methodology to measure the novel concept of elite quality (EQ), that is, country’s elites’ propensity– on aggregate – to create value, rather than rent seek. A four-level architecture allows for both an overall quantification of a country’s EQ, as well as an in-depth analysis of specific political economy dimensions, such as elite power. Secondly, the Elite Quality Index (EQx) is brought to life using data on 107 indicators for 151 countries. Our index negatively correlates with inequality measures, which suggests that more powerful elites less inclined to run value creation business models will exacerbate inequality. A variety of robustness tests suggest that the EQx scores and ranking are robust to ceteris paribus changes in key modelling assumptions. Thus, the EQx offers a reliable framework and potentially a new tool to analyze the political economy of countries.

This study explores the effects of patent protection and R&D subsidies on innovation and income inequality using a Schumpeterian growth model with heterogeneous households. We find that although strengthening patent protection and raising R&D subsidies have the same macroeconomic effects of stimulating innovation and economic growth, they have drastically different microeconomic implications on income inequality. Specifically, strengthening patent protection increases income inequality whereas raising R&D subsidies decreases (increases) it if the quality step size is sufficiently small (large). An empirically realistic quality step size is smaller than the threshold, implying a negative effect of R&D subsidies on income inequality. We also calibrate the model to provide a quantitative analysis and find that strengthening patent protection causes a moderate increase in income inequality and a negligible increase in consumption inequality whereas raising R&D subsidies causes a relatively large decrease in both income inequality and consumption inequality.

This study develops a Schumpeterian growth model with endogenous entry of heterogeneous firms to analyze the effects of monetary policy on economic growth via a cash-in-advance constraint on R&D investment. Our results can be summarized as follows. In the special case of a zero entry cost, an increase in the nominal interest rate decreases R&D, the arrival rate of innovations and economic growth as in previous studies. However, in the general case of a positive entry cost, an increase in the nominal interest rate affects the distribution of innovations that are implemented and would have an inverted-U effect on economic growth if the entry cost is sufficiently large. We also calibrate the model to aggregate data of the US economy and find that the growth-maximizing inflation rate is about 3%, which is consistent with recent empirical estimates. Finally, we also explore the welfare effects of inflation and consider a number of extensions to the benchmark model.

This paper shows that combining the semi-endogenous and the fully endogenous growth mechanisms with a general CES aggregator, either growth process can prevail in the balanced growth path depending on their degree of complementarity/substitutability. Policy-induced long-run economic switches to the fully endogenous steady state as the R&D employment ratio surpasses a positive threshold are possible if the two growth engines are gross substitutes.

This paper shows that combining the semi-endogenous and the fully endogenous growth mechanisms with a general CES aggregator, either growth process can prevail in the balanced growth path depending on their degree of complementarity/substitutability. Policy-induced long-run economic switches to the fully endogenous steady state as the R&D employment ratio surpasses a positive threshold are possible if the two growth engines are gross substitutes.

First generation endogenous growth models had the counterfactual implication that the long-term growth of per-capita GDP increased with the population size. Two influential growth paradigms, the semi-endogenous and the second generation fully endogenous, eliminated this strong scale effect. Both solutions have useful aspects and insights, but very different policy implications. This paper combines both approaches into a single hybrid model class, and shows that no matter the weight assigned to each paradigm, the long-run predictions of the semi-endogenous policy dominate with high enough population growth rates, while the long-run predictions of the fully endogenous policy dominate at low population growth rates.

How long shall a country take to learn the world technological frontier? What would happen if that country found the same difficulties in learning the true model of its economy? After all, countries catching up often experience life-changing transformations during the catch-up to a balanced growth path. We show that an open economy, learning rational expectations alongside foreign technology, may be characterized by excessive saving and current account surpluses, as often observed in the data and at odds with the standard open economy theoretical predictions, and not fully explained by standard adaptations such as habit formation. Moreover, such a learning process in a large developing country can upset the savings behavior of a fully rational expectations advanced country. In a US-China calibration, we show that this effect can be so strong as to explain important current account imbalances, the savings glut hypothesis, as well as the distribution of factor income.

Basic research is mainly performed publicly. Yet in the US public research findings were not patentable until 1980, and in other countries are not yet patentable. Patentability renders public research more directed, with less potential waste, but it also restricts private applied research. This paper shows, by means of a multi-stage Schumpeterian growth model, that in the long run the first effect is bound to dominate.

This study explores growth accounting under endogenous technological progress. It is well known that the Solow approach overstates (understates) the contribution of capital accumulation (technological progress) to economic growth and that the Mankiw-Romer-Weil approach addresses this issue. However, we find that the Mankiw-Romer-Weil approach is inconsistent (consistent) with the lab-equipment (knowledge-driven) specification for technological progress. We also examine the importance of capital accumulation on growth in China under the two approaches.

This study explores the macroeconomic effects of labor unions in a two-country R&D-based growth model in which the market size of each country determines the incentives for innovation. We find that an increase in the bargaining power of a wage-oriented union leads to a decrease in employment in the domestic economy. This result has two important implications on innovation. First, it reduces the rates of innovation and economic growth. Second, it causes innovation to be directed to the foreign economy, which in turn causes a negative effect on domestic wages relative to foreign wages in the long run. We also derive welfare implications and calibrate our model to data in the US and the UK to quantify the effects of labour unions on social welfare and wage inequality across countries. Our calibrated model is able to explain about half of the decrease in relative wage between the US and the UK from 1980 to 2007. Furthermore, the decrease in unions' bargaining power leads to quantitatively significant welfare gains in the two countries.