Florian Trouvain

I develop a tractable semi-endogenous multi-country growth model with a technology adoption margin. Innovation and adoption are skill-intensive activities, and a tradeoff arises whether skilled labor is used to push out the technological frontier or to adopt existing technology. I use the theory to revisit the effect of market integration on growth, especially among asymmetric countries with large differences in innovative capacity. Transitional dynamics and long-run effects implied by the model differ substantially from benchmark endogenous growth models and jointly explain stellar per capita growth in emerging markets and the disappointing growth performance of advanced economies after rising global market integration since the 1990s.

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.