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Appropriate technology and Barriers to Technology Adoption:

Appropriate technology and Barriers to Technology Adoption: Potential implications for the European Union. Jean Mercenier. Ebru Voyvoda. U. Panthéon-Assas and CIRED, Paris. Mid-East Tech U, Ankara. A. The Issue. Mixing two strands of literature :.

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Appropriate technology and Barriers to Technology Adoption:

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  1. Appropriate technology and Barriers to Technology Adoption: Potential implications for the European Union Jean Mercenier Ebru Voyvoda U. Panthéon-Assas and CIRED, Paris Mid-East Tech U, Ankara

  2. A. The Issue Mixing two strands of literature: • Appropriate / directed technology • Barriers to technology adoption • Appropriate (directed) technology Ref: Diwan-Rodrik (JIE, 1991), Acemoglu-Zilibotti (QJE, 2001) In standard theory, at one moment in time, there is only one production function that expresses “state of the art”. Any deviation from this would be due to inefficiency Development target: get to the frontier = adopt the “state of the art” production function Question: Is there only one “state of the art” technology? Is the “state of the art” technology not dependent on endowments? Is there not an appropriate technology for each country depending on relative abundance in factors ?

  3. Log efficiency Sk-Lab Log efficiency of Un-Lab Illustration:

  4. Barriers to technology adoption Assume identical endowments: deviation from “state of the art” is inefficiency. Causes ? Many potential complementary explanations One is: there are barriers to technology adoption in particular when economies are closed to foreign trade/capital etc Ref: Parente and Prescott, 2000 One (hard to measure) consequence from trade integration -- is to reduce these barriers to technology adoption… -- … and to shift the country’s efficiency closer to frontier Efficiency gains are induced… and welfare gains... When many countries simultaneously join a trade union... strong potential shifts in international competitiveness !

  5. Log efficiency Sk-Lab Log efficiency of Un-Lab Question : East European countries joining the EU in 2004 (a) Where do they locate on this graph ? (b) If they locate somewhere below the EU tech frontier... one can expect adoption of better technologies in near future... What consequences for them ? ... and for the others ?

  6. We have to estimate the "state of the art" technical frontier and identify the relative position of each pre-2004 / post-2004 EUcountries Caselli and Coleman (A.E.R., 2006) Using WIOD data for 27 EU countries with a 10 sector disaggregation We make regressions… … and we finally get:

  7. Pre-2004 EU member states

  8. Pre-2004 EU member states

  9. 2004 EU entrant states

  10. 2004 EU entrant states

  11. 2004 EU entrant states

  12. The experiment? Increase TLP

  13. In the long term equilibrium...

  14. Consequences of such a productivity shock? • On East EU countries: obvious ! • On other EU members ? To evaluate these potential effects, we then build/simulate a calibrated general equilibrium model with 10 sectors of activities (some with IRS – monopolistic comp) 27 EU countries (RoW is exogenous except for price responsive trade) 2 period (short v.s. long term) decentralized optimal growth Year 2007 SAM, based on EU + WIOD data set, thanks to the work of Álvarez-Martínez and López-Cobo, 2016

  15. B. The General Equilibrium model 27 countries EU27 + RoW Base year : 2007

  16. -- Labor supply allocated to sectors using a CET frontier 2 periods: a short run characterized by rigidities / low mobility a long run characterized by flexibility / high mobility

  17. Max CES demand system for market goods Endogenous private savings determined from households' intertemporal optimization: Note: time aggregation issues in intertemporal optimization models, see Mercenier and Michel (Econometrica, 1994). FOC

  18. 2-level CES demand structure for 3 Allocated to countries using a CET frontier Allocated to sectors within countries using a CET frontier 2-level CET between countries between sectors within countries

  19. s.t. pub debt constant CES demand system for market goods

  20. DSK differentiation elasticity 5 Competitive game: large group monopolistic competition In short run: fixed number of firms In long run: free entry/exit of firms

  21. X Q demand for goods produced in all countries demand for goods factor demands Kap Lab K KG Lsk Lun TLP

  22. (or a wage curve if endogenous unemp.) By Walras’s law, the RoW budget constraint has to be satisfied we assume no RoW asset accumulation

  23. 8. Welfare

  24. C. Results Welfare index, post-2004 countries

  25. Welfare index, pre-2004 countries

  26. CRS, flex wages

  27. D. Conclusions EU Politicians : Act !!! Or beware of rising populism…

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