New paper with @mw_econ on Fiscal Stagnation. Key insights: 1) High public debt may push the economy into fiscal stagnation, i.e. a persistent state of low growth and high fiscal distortions. 2) Pro-growth policies are crucial to exit stagnation, but they require credibility.

Super interesting! "Tariffs and Technological Hegemony" by Luca Fornaro and Martin Wolf. "We provide a theory connecting trade policies to innovation and technological hegemony, based on the notion that high-tech clusters generate technological rents for the countries hosting

Here's a thread summarizing the paper

Seems relevant to understand the current situation, given how important trade in high-tech goods is nowadays. I will be presenting this paper at the next IMF Jacques Polak conference, looking forward to it! https://t.co/pwewf1mdv7

New paper with @mw_econ on "Tariffs and Technological Hegemony" In a nutshell, we provide a theory in which countries engage in trade wars to boost their high-tech sectors and gain a position of technological leadership. https://t.co/y9cgzMUnBt

Also, I will be presenting this paper at the next IMF Jacques Polak conference https://t.co/pwewf1mLkF. The program looks great, and I look forward to it.

If you're interested, you can find the full paper here https://t.co/y9cgzMUnBt. @mw_econ and I are pretty new to the international trade literature, so comments are welcome.

Finally, what if a country puts a tariff on innovation inputs, perhaps by taxing researchers moving from abroad? This policy may fail spectacularly, by triggering an outflows of innovation goods, which over time will erode the country's technological rents.

Moreover, if the rest of the world chooses to retaliate, the result will be a full-blown trade war. In this scenario, tariffs have no impact on the distribution of technological rents across countries, but they cause big efficiency and output losses.

But this strategy has several drawbacks. First, reducing imports of foreign high-tech goods generates productivity and output losses. Second, even if import tariffs may increase national welfare, this comes at the expense of even larger welfare losses in the rest of the world.

Tariffs on imports of high-tech goods may be used to steal technological rents from the rest of the world. Intuitively, tariffs reduce the profitability of foreign high-tech firms, causing a flow of innovation inputs and technological rents to the country imposing the tariffs.

From a national perspective, importing innovation inputs yields technological rents, because of the positive knowledge spillovers that they create. So countries have an incentive to compete for technological hegemony, i.e. to become net importers of innovation inputs.

To innovate, high-tech firms need specialized 'innovation inputs', such as researchers and venture capital. Building a strong high-tech cluster requires importing innovation inputs from abroad. Think of foreign researchers working for Big Tech firms in the Silicon Valley.

We start from the observation that high-tech clusters generate technological rents for the countries hosting them. Not only high-tech firms are highly profitable, but their innovation activities trigger positive knowledge spillovers to other domestic firms.

We provide a framework connecting trade policies to innovation and technological hegemony. Our model focuses on high-tech firms that invest heavily in R&D and other intangibles. Nowadays, these firms play a key role in international trade.

So glad to see this paper forthcoming in the AER. I learned a lot by working on it, and collaborating with @Federomei1 is always fun. Thanks a lot to the editor, the referees and everyone else who gave us useful suggestions. Special thanks to @diegoebm for excellent r.a. work!

🚨 NEW WP “Are Hysteresis Effects Nonlinear?” w/@OmarCarnevale1 Are demand contractions the only source of persistence, or can expansions also generate lasting gains? Main result: hysteresis is not only negative. Positive shocks can matter too https://t.co/637lQ9bPvS (1/10)

Some thoughts on the interactions between public debt, public investments and productivity growth in the euro area. Key risk is that the union ends up being split between a fiscally sound/high growth block and a fiscally stagnant one. https://t.co/gnE9OIBrVI

Fascinating why US investment & productivity weak despite global saving glut & low rates

What is sure is that tariffs make it even more important to boost the EU single market and remove barriers to intra EU trade, so as to increase EU firms' market size and their incentives to innovate.

Through this channel, US tariffs on imports from the EU may depress EU productivity growth. So not clear who is going to suffer more over the medium run (paper on this coming soon).