Globalization and Synchronization of Innovation Cycles

Transcription

1 Globalizaion and Synchronizaion of Innovaion Cycles Kiminori Masuyama, Norhwesern Universiy, USA Iryna Sushko, Insiue of Mahemaics, Naional Academy of Science of Ukraine Laura Gardini, Universiy of Urbino, Ialy Inernaional Trade and Macroeconomics Program NBER Summer Insiue July 4, 06 Page of 9

2 Inroducion Page of 9

3 Theoreical Moivaion: How does globalizaion affec macro co-movemens across counries? Mos economiss address his quesion by assuming ha some exogenous processes drive produciviy movemens in each counry. Bu, globalizaion (a rade cos reducion) can affec o produciviy growh raes, as already shown by endogenous growh models o synchroniciy of produciviy flucuaions, as we show in an endogenous cycle model Empirical Moivaion: Counries ha rade more wih each oher have more synchronized business cycles o Paricularly among developed counries (EU, OECD, ec) o No so beween developed and developing counries Hard o explain his rade-comovemen puzzle in models wih exogenous shocks o Common shocks would cause synchronizaion regardless of he rade inensiy o Wih counry-specific shocks, more rade lead o less synchronizaion o Aemps o resolve i by global supply chains me limied success Easier (perhaps oo easy) in models of endogenous flucuaions. No need o appeal o global supply chains. Page 3 of 9

4 Inuiion We Wan o Capure o Two srucurally idenical counries o Each counry (in auarky) is subjec o endogenous flucuaions, due o sraegic complemenariies in he iming of innovaion among firms compeing in he same marke o Wihou rade, flucuaions in he wo counries are obviously disconneced. o Trade inegraion makes firms based in differen counries compee agains each oher and respond o an increasingly global (hence common) marke environmen. o Even wih parial inegraion, his causes an alignmen of innovaion incenives, synchronizing innovaion aciviies and produciviy flucuaions across counries Wha We Do: To capure his inuiion in a simples possible manner, A wo-counry model of endogenous innovaion cycles wih wo building blocks o Judd (985; sec.4) Endogenous innovaion cycles due o imiaion lag o Helpman & Krugman (985; ch.0), Home marke effec/inra-indusry rade beween srucurally idenical counries wih iceberg rade cos. Concepually, his is a sudy of Synchronizaion of (Weakly) Coupled Oscillaors Page 4 of 9

5 The Two Building Blocks Page 5 of 9

6 Judd (985); Dynamic Dixi-Sigliz monopolisic compeiive model; Innovaors pay fixed cos o inroduce a new (horizonally differeniaed) variey Judd (Sec.); Innovaors keep heir monopoly power. Unique seady sae globally sable. Wha if compeiive fringes can imiae, bu only wih a lag? o Each variey sold iniially a monopoly price; laer a compeiive price o Impac of an innovaion, iniially mued, reach is full poenial wih a delay o Pas innovaion discourages innovaors more han conemporaneous innovaion o Temporal clusering of innovaion, leading o aggregae flucuaions Judd (Sec.3); Coninuous ime and monopoly lasing for 0 < T < o Delayed differenial equaion wih an infinie dimensional sae space Judd (Sec.4); also Deneckere & Judd (99): Discree ime and one period monopoly o D sae space (he measure of compeiive varieies inheried from pas innovaion deermines how sauraed he marke is) o Expecaions do no maer! o Unique equilibrium pah, obained by ieraing a D-map Page 6 of 9

7 Deneckere-Judd (DJ) in a Nushell: A Skew-Ten Map n : (Measure of) compeiive varieies (per labor supply) inheried n f ( n ) f f L H ( n ( n ) ) ( ) n n if if n n 45º (0,), Survival rae of varieies due o obsolescence (or exogenous labor supply growh) (, e), increasing in σ (EoS) Marke share of a compeiive variey relaive o a monopolisic variey > 0: he delayed impac of innovaions Seady sae (SS) globally sable for Innovaion Unsable SS; Converging o he unique -cycle from a.e. for No sable cycle; Robus chaoic aracor for O Acive No Innovaion Page 7 of 9

8 Helpman & Krugman (985; Ch.0): Trade in horizonally differeniaed (Dixi-Sigliz) goods wih iceberg rade coss beween wo srucurally idenical counries; only heir sizes may be differen. In auarky, he number of firms based in each counry is proporional o is size. As rade coss fall, o Differeniaed goods produced in he wo counries muually penerae each oher s home markes (Two-way flows of goods). o Firm disribuion becomes increasingly skewed oward he larger counry (Home Marke Effec and is Magnificaion) Two Parameers: s & s s [/,) : Bigger counry s share in marke size sn [0,) : Degree of Globalizaion: inversely relaed o he iceberg cos, s / s n : Bigger counry s share in firm disribuion O s/s ρ Page 8 of 9

9 A Two-Counry Model of Endogenous Innovaion Cycles Page 9 of 9

10 Our Main Resuls: By combining DJ (99) and HK (985): D sae space: (Measures of compeiive varieies in he wo counries) Unique equilibrium pah obained by a D map wih 4 parameers: θ, δ, s, One uni of compeiive varieies = θ (> ) unis of monopolisic varieies One uni of foreign varieies = ρ (< ) uni of domesic varieies For, eiher Synchronized -cycle or Asynchronized -cycle Auarky (ρ = 0): Dynamics of he wo counries decoupled. Wheher synchronized or no depends enirely on how you draw he iniial condiion As rade coss fall (a higher ρ), hey become more synchronized: o Basin of aracion for Asynchronized -cycle shrinks & disappears o Basin of aracion for Synchronized -cycle expands & covers he full sae space Fully synchronized wih parial rade inegraion (ρ < ) o A a smaller ρ (i.e., a larger rade cos) wih more unequal counry sizes o Even a small size difference makes a big difference o The larger counry ses he empo of global innovaion cycles, wih he smaller counry adjusing is rhyhm Page 0 of 9

11 D Dynamical Sysem; n F ( n ) n (0 < δ < ; < θ < e; 0 ρ < ; / s < ) R, ; wih n s ( ) ( ) n n s ( ) ( ) n if D n n n n if D n n n h ( n ) ( ) n if n h ( n ) ( ) n n n if n n n n, n LL n n, n HH R n j s j ( ) R n j h j ( nk n n n D HL ), R n s ( ); n h ( n ) n n n D LH s s where s ( ) s( ) min,, 0.5 s s ; s j sk h j ( n k ) 0 defined implicily by. h ( n ) n h ( n ) n / j k k j k, R n h ( n ); n s ( ) k Page of 9

12 Sae Space & Four Domains for he Symmeric Case: s / s 0 (ρ = 0) (ρ = ) Innovaion Acive in D LH DHH No Innovaion (ρ = 0) Innovaion Acive in Boh D LL DHL O Innovaion Acive in (ρ = ) Page of 9

13 Sae Space & Four Domains for he Asymmeric Case: s / s 0 Innovaion Acive in DHH No Innovaion DLH Innovaion Acive in Boh O DLL D HL Innovaion Acive in Page 3 of 9

14 Synchronized vs. Asynchronized -Cycles in Auarky: 0 As a D-map, his sysem has * An unsable seady sae; n,n A pair of sable -cycles * * * * o Synchronized; n L, nl n H, nh, Basin of Aracion in red. * * * * o Asynchronized; n L, nh n H, nl, Basin of Aracion in whie A pair of saddle -cycles: * * * * * * n, n n n n n * * L H, ;, H n, nl * Kiminori Masuyama, Globalizaion and Synchronizaion of Innovaion ;, Page 4 of 9

15 Symmeric Synchronized & Asynchronized -Cycles: s 0. 5 ;. 5; Red (Sync. -cycle) becomes dominan. Sym. Async. -cycle becomes a node a ρ =.87867, a saddle a ρ = Page 5 of 9

16 Asymmeric Synchronized & Asynchronized -Cycles s 0. 7,. 5; By ρ =.65, infiniely many Red islands appear inside Whie. By ρ =.9, he sable asynchronized -cycle collides wih is basin boundary and disappears, leaving he Synchronized -cycle as he unique aracor. Page 6 of 9

17 Three Effecs of Globalizaion: Home Marke Effec Produciviy Gains Synchronizaion Page 7 of 9

18 Concluding Remarks Page 8 of 9

19 Summary: A hybrid of Judd s (985; Sec.4) innovaion cycles based on imiaion lag and Helpman-Krugman (985) home marke effec/inra-indusry rade wih iceberg cos s wo-counry model of endogenous flucuaions Adding endogenous sources of flucuaions helps o undersand he radecomovemen puzzle. Nex Seps: Differen Models of Endogenous Innovaion Cycles: o My conjecure: Globalizaion should cause synchronizaion as long as i causes innovaors based in differen counries o operae in a common marke environmen. o The assumpion of srucural similariy seems crucial. Wha if wo counries are srucurally dissimilar? Differen Models of Trade: For example, o Wha if he wo counries become verically specialized?; e.g., global supply chains o Two Indusries: Upsream & Downsream, each produces DS composie as in DJ. o One counry has comparaive advanage in U; he oher in D o My conjecure: Globalizaion leads o an asynchronizaion Empirically consisen, as he evidence for he synchronizing effec of rade is srong among developed counries, bu no so bw developed and developing counries Page 9 of 9