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Learning-by-doing and business cycles in emerging economies

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Abstract

This paper examines whether learning-by-doing plays an important role in emerging economies. A business cycle model with learning-by-doing is presented and estimated using the data of emerging and developed economies. Its performance is considered from the viewpoint of predictive performance and the business cycle moments focused on in recent studies, namely, high volatility of consumption relative to that of output, and highly countercyclical net exports. The model with learning-by-doing outperforms the trend productivity shocks proposed by Aguiar and Gopinath (J Polit Econ 115(1):69–102, 2007) in predictive performance and it can also replicate the key business cycle moments. This is made possible through enhancing the persistence of productivity shocks and affecting the household’s expectation of permanent income. Further, the model is consistent with the observed relationships between the business cycle moments and growth rates. These results suggest the essential role of learning-by-doing in emerging economies and imply a possible reason for the difference in business cycles in emerging and developed economies.

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Notes

  1. Hsieh’s (1999, 2002) studies are examples of growth accounting studies that examine the importance of productivity growth in emerging economies, in contrast to Young (1995) or Fernald and Neiman (2011).

  2. I use Uribe and Schmitt-Grohé’s (2017) quarterly data for the period 1980:Q1 to 2012:Q4. I retrieved their series for aggregate output, consumption, investment, exports, and imports. I focus on the same 11 emerging economies and 17 developed economies that Uribe and Schmitt-Grohé (2015) chose in examining the business cycle facts. Their sample of emerging economies includes Argentina, Israel, Korea, Mexico, New Zealand, Peru, Portugal, South Africa, Spain, Turkey, and Uruguay. The sample of developed economies includes Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Italy, Japan, the Netherlands, Norway, Sweden, Switzerland, the United Kingdom, and the United States. Variables y and c are real output and consumption per capita, respectively, which are deseasonalized, logged, and Hodrick–Presscott (HP) filtered with a smoothing parameter of 1600. The mean quarterly growth rates of output for each country are calculated as the least squared mean of quarterly growth rate of deseasonalized output, following Canjels and Watson (1997).

  3. Following Aguiar and Gopinath (2007), the variable is normalized by trend productivity through period \(t-1\). The choice of normalization does not affect the solution to the model.

  4. The decrease in c/y does not necessarily make \(nx \approx 1-c/y-i/y\) procyclical, since the investment–output ratio i/y may increase in response to a positive productivity shock.

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Acknowledgements

I am grateful to Takayuki Tsuruga, Akihisa Shibata, Hiroshi Osano, Saroj Bhattarai, Olivier Coibion, Andrea Civelli, Jason Bergtold, Kenya Takaku, Dongya Koh, Hiroki Toyoda, Ayumu Tanaka, and Takehiro Kiguchi for their helpful comments. This work was supported by JSPS KAKENHI (Grant Number JP16J09356).

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  1. Kyoto University of Advanced Science, 18 Yamanouchi Gotanda-cho, Ukyo-ku, Kyoto, 615-8577, Japan

    Akihiko Ikeda

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Ikeda, A. Learning-by-doing and business cycles in emerging economies. Rev World Econ 156, 611–631 (2020). https://doi.org/10.1007/s10290-020-00373-3

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