Sectoral Fiscal Multipliers and Technology in Open Economy

Cardi, Olivier and Restout, Romain (2023) Sectoral Fiscal Multipliers and Technology in Open Economy. Journal of International Economics, 144: 103789. ISSN 0022-1996

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Our evidence reveals that the rise in real GDP is uniformly distributed across sectors following a government spending shock while labor growth is concentrated in non-traded industries. A rationale behind these two findings lies in technology which responds endogenously to the government spending shock. While technology improvements are concentrated in traded industries, technological change is biased toward labor (capital) in non-traded (traded) industries. To account for our evidence, we consider a semi-small open economy model with tradables and non-tradables where both capital and technology can be used more intensively. While financial openness amplifies the biasedness of the demand shock toward non-traded goods, labor mobility costs, imperfect substitutability between home- and foreign-produced traded goods and endogenous capital utilization are necessary conditions for giving rise to traded technology improvement. The model can reproduce the size of fiscal multipliers once we let technology adjustment costs together with factor-biased technological change vary across sectors.

Item Type:
Journal Article
Journal or Publication Title:
Journal of International Economics
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Research Output Funding/yes_externally_funded
?? sector-biased government spending shocksendogenous technological changefactor-augmenting efficiencyopen economylabor reallocationces production functionlabor income shareyes - externally fundedfinanceeconomics and econometrics ??
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17 Jul 2023 09:15
Last Modified:
15 Jul 2024 23:57