Technology and the economy : the two-way causality

Defence date: 27 February 2015Examining Board: Professor Árpád Ábrahám, EUI, Supervisor; Professor Miklós Koren, Central European University; Professor Ramon Marimon, EUI; Professor José Vicente Rodríguez Mora, University of Edinburgh.The thesis explores the role of technology in some of the most important economic phenomena of the last decades and examines how changes in the state of the economy could influence the nature of technology. In the first chapter I study the relation between supply of skilled labor, firms’ choice of optimal technology and wage inequality. Researchers have acknowledged that one of the key causes of the increase in inequality across OECD countries was the introduction of skill-biased production methods, which generated a higher demand for skilled workers. In the chapter, I explore whether the shift to skill-biased production method was a consequence of changing nature of new global technological paradigm (specifically, the arrival of the information technology) or a consequence of firms’ choice to exploit the new technological paradigm in a way that favors skilled workers. Such choice could be motivated by a rapid increase in availability of college graduates in 70s and 80s. To study these questions, I first observe that while the source of the latter cause is global, the source of the former rests in labor market conditions at the country level. Hence panel data estimators could be used to disentangle the two effects. I find that endogenous technology choice at the local level can explain 30% of the increase of the college premium in the OECD countries. The second chapter studies how the rate and direction of technological change is influenced by the parameters of consumers’ preferences. I demonstrate that the elasticity of substitution between goods in the Dixit-Stiglitz framework can be represented as a simple linear function of a taste heterogeneity measure. I combine this result with Young’s model of endogenous growth, which predicts that the speed of technological progress depends positively on the elasticity of substitution between goods. The purpose of the third chapter is to summarize the convergence of Central and Eastern European to Western European economies in the period between 1995 and 2007. It decomposes growth of relative output into growth of capital, labor input, human capital and TFP. I find the evidence for the massive contribution of TFP convergence in the GDP convergence

Workers or Consumers: Who Pays for Low-Carbon Transition – Theoretical Analysis of Welfare Change in General Equilibrium Setting

Policies that are introduced to mitigate adverse consequences of climate change involve economic costs. For some households, these costs will materialise in the form of an increase in prices of consumption goods, whereas for others they will materialise in the form of falling productivity and wages. Disentangling these two effects is important in the light of the design of funds that aim to support the households that are negatively affected by climate policy. In this article, we study the effect of carbon tax on welfare through changes of consumer prices and wages in a general equilibrium setting. In the first step, we review the literature on ‘top-down’ models, which are used to evaluate the macroeconomic cost of climate policy. We find that these models usually do not account for loss of productivity of workers who must change their sector due to climate policy. In the second step, we develop a theoretical, micro-founded, two-sector model that explicitly accounts for the loss of productivity of workers. The compensation of climate-change mitigation costs would require allocation of separate funds for the affected consumers and workers

Induced technological change and energy efficiency improvements

We present a theoretical and empirical model which (1) shows that the demand for energy is shifted down by innovations in energy intensive sectors and (2) highlights the drivers of innovative activity in these sectors. The theoretical model and the empirical analysis of patent and energy data indicate that the level of innovative activity is determined by energy expenditure as well as international and inter-temporal spillovers. The solution of the theoretical model along the balanced growth path suggests that in general equilibrium the level of innovative activity depends on the growth rate of energy generation cost. The model predicts also that a level increase in the cost of energy does not alter the long-run energy share of income. Finally, we show that our results can be used to calibrate Integrated Assessment Models to project energy efficiency growth

Directed Technological Change and Energy Efficiency Improvements

This paper applies the Directed Technical Change (DTC) framework to study improvements in the efficiency of energy use. We present a theoretical model which (1) shows that the demand for energy is shifted down by innovations in energy intensive sectors and (2) highlights the drivers of innovative activity in these sectors. We then estimate the model through an empirical analysis of patent and energy data. Our contribution is fivefold. First, our model shows that under very general assumptions information about energy expenditures, knowledge spillovers and the parameters governing the R&D process are sufficient to predict the R&D effort in efficiency improving technologies. Second, we pin down the conditions for a log-linear relation between energy expenditure and the R&D effort. Third, the calibration of the model provides clear evidence that the value of the energy market as well as international and inter-temporal spillovers play a significant role in determining the level of innovative activity. Fourth, we show that innovative activity in energy intensive sectors shifts down the (Marshallian) demand for energy. Finally, we show that due to the streamlined modelling framework we adopt, the point estimates from our regression can potentially be used to calibrate any model of DTC in the context of energy consumption

Bending The Learning Curve

This paper aims at improving the application of the learning curve, a popular tool used for forecasting future costs of renewable technologies in integrated assessment models (IAMs). First, we formally discuss under what assumptions the traditional (OLS) estimates of the learning curve can deliver meaningful predictions in IAMs. We argue that the most problematic of them is the absence of any effect of technology cost on its demand (reverse causality). Next, we show that this assumption can be relaxed by modifying the traditional econometric method used to estimate the learning curve. The new estimation approach presented in this paper is robust to the reverse causality problem but preserves the reduced form character of the learning curve. Finally, we provide new estimates of learning curves for wind turbines and PV technologies which are tailored for use in IAMs. Our results suggest that the learning rate should be revised downward for wind power, but possibly upward for solar PV

Towards Climate Neutrality in Poland by 2050: Assessment of Policy Implications in the Farm Sector

Climate neutrality achievement in the European Union assumes the necessity of efforts and transformations in most economic sectors of its member-states. The farm sector in Poland, being the second largest contributor to the country’s greenhouse gas (GHG) emissions and in the top fifth of farm sectors in the EU-27 countries, needs to undergo structural and technological transformations to contribute to the climate action goals. The article assesses the potential impacts of Poland’s climate neutrality achievement path on the domestic farm sector in terms of its structure, output, income, and prices of agricultural products. The approach is based on complex economic modelling combining computable general equilibrium (CGE) and optimisation modelling, with the farm sector model consisting of farm, structural, and market modules. While the modelling results cover three GHG emission-reduction scenarios up to 2050, to understand the transformation impact within varying policy approaches, the study for each scenario of farm sector development also outlines three policy options: carbon pricing, forced emission limit, and carbon subsidies. Results in all scenarios and policy options indicate a strong foreseeable impact on agricultural output and prices (mainly livestock production), shifts in the production structure toward crops, as well as changes in farm income along the analysed timeframe