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Endogenous Technology Adoption and R&D as Sources of Business Cycle Persistence
Diego Anzoategui, Diego Comin, Mark Gertler, and Joseba Martinez
American Economic Journal: Macroeconomics. Jul 2019, Vol. 11, No. 3: Pages 67-110

Endogenous Technology Adoption and R&D as Sources of Business Cycle Persistence

Diego Anzoategui1, Diego Comin2, Mark Gertler3 and Joseba Martinez4

1Rutgers University Department of Economics, 75 Hamilton Street, New Jersey Hall (College Ave Campus), New Brunswick, NJ 08901-1248 (email: )

2Dartmouth College Department of Economics, 6106 Rockefeller Hall, Hanover, NH 03755, NBER, and CEPR (email: )

3New York University Department of Economics, 19 W 4th Street, New York, NY 10012 and NBER (email: )

4London Business School Department of Economics, Regents Park, London, NW1 4SA, UK (email: )

Abstract

We examine the hypothesis that the slowdown in productivity following the Great Recession was in significant part an endogenous response to the contraction in demand that induced the downturn. We motivate, develop, and estimate a model with an endogenous TFP mechanism that allows for costly development and adoption of technologies. Our main finding is that a significant fraction of the post-Great Recession fall in productivity was an endogenous phenomenon, suggesting that demand factors played an important role in the postcrisis slowdown of capacity growth. More generally, we provide insight into why recoveries from financial crises may be so slow. (JEL E23, E24, E32, E44, G01)