Florian Trouvain

Economic Growth since the mid 1990s is characterized by i) declining cross-country inequality, ii) rising within-country inequality, and iii) overall weak growth in advanced economies. I provide a unifying explanation for these facts by developing a theory of long-run growth that focuses on the interaction of innovation and technology adoption in a globalized world. I model both activities as skill-intensive, and study how goods market integration with emerging markets shapes the returns to innovation vis-a-vis technology adoption. While the development of frontier technology in advanced economies is boosted by globalization, increasing innovation comes at the cost of rising inequality and reduced domestic technology adoption. When ideas are getting harder to find, the growth drag from reduced adoption dominates positive innovation effects, which explains slow TFP growth and stagnant wages for non-college workers in advanced economies. The mechanism is corroborated by cross-sectional evidence from German micro data, which leverages regional specialization in innovation vs. production together with the fall of the Iron Curtain.

High saving rates in fast growing “miracle” economies and the associated capital outflows have long been a puzzle in the international economics literature. I provide evidence that the demand for safe assets is systematically higher for urban (non-agricultural) relative to rural (agricultural) households suggesting a strong precautionary savings motive in urban areas. I combine this with the insight that miracle economies display fast structural change out of traditional farming. The interplay of structural change and rising demand of safe assets of urban households can account for the puzzling capital outflows during the growth miracle. I then develop a tractable model of miracle growth and human capital risk that rationalizes these findings. The key ingredients of the model are structural transformation away from traditional agricultural production, a heterogeneous income growth experience of households in the urban sector which gives rise to an unequal income distribution, and initial uncertainty about a household’s position on this distribution. The model characterizes in closed form the trade-off between consumption smoothing and precautionary savings,and offers a simple sufficient statistic to sign the direction of capital flows along the transition path.

I develop a theory of ``miracle'' convergence growth that rationalizes three salient facts. First, growth miracles are often associated with net capital outflows, driven by demand for safe assets. Second, net FDI inflows occur along the transition path. Third, inequality is rising dramatically. I develop an incomplete market model with growth rate heterogeneity so that convergence growth itself is unevenly distributed. In combination with financial frictions, the model generates strong household savings pressure, and net capital outflows alongside FDI inflows. The theory highlights that the distribution of growth in emerging markets matters for global capital flows.

I measure urban-rural differences in human capital risk to understand differences in wealth accumulation and savings behavior across urban and rural households in poor and middle-income countries. I explore how risk interacts with human capital accumulation and structural change from rural to urban economic activity. In a final step I assess whether public safety nets can be effective tools to accelerate the process of urbanization through the lens of a two-sector incomplete market model of long-run structural change.