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University of Arkansas, Fayetteville ScholarWorks@UARK Theses and Dissertations 8-2013 Essays in Economic Growth and Development Zhen Zhu University of Arkansas, Fayetteville Follow this and additional works at: http://scholarworks.uark.edu/etd Part of the Growth and Development Commons Recommended Citation Zhu, Zhen, "Essays in Economic Growth and Development" (2013). Theses and Dissertations. 839. http://scholarworks.uark.edu/etd/839 This Dissertation is brought to you for free and open access by ScholarWorks@UARK. It has been accepted for inclusion in Theses and Dissertations by an authorized administrator of ScholarWorks@UARK. For more information, please contact scholar@uark.edu, ccmiddle@uark.edu. ESSAYS IN ECONOMIC GROWTH AND DEVELOPMENT ESSAYS IN ECONOMIC GROWTH AND DEVELOPMENT A dissertation submitted in partial fulfillment of the requirements for the degree of Doctor of Philosophy in Economics By Zhen Zhu Northeastern University Bachelor of Arts in Economics, 2008 University of Arkansas Master of Arts in Economics, 2009 August 2013 University of Arkansas This dissertation is approved for recommendation to the Graduate Council. Dr. Javier A. Reyes Dissertation Director Dr. Gary D. Ferrier Committee Member Dr. Fabio Mendez Committee Member ABSTRACT This dissertation consists of three chapters exploring the Solow Residual of the Solow growth model. Two central components of the Solow Residual have been studied in my doctoral dissertation. The first is the structural transformation, an internal adjustment process that helps the economy attain the optimal points on its Production Possibility Frontier by reallocating resources from the low-productivity sectors to the high-productivity sectors. The second is the technology diffusion, a positive externality process that pushes forward the economy’s Production Possibility Frontier if it adopts the newer technology. The first chapter of my dissertation is devoted to a case study of China’s structural transformation. As one of the fastest growing economies in the world, China has observed dramatic reallocation of resources from the agricultural sector to the nonagricultural sector over the last three decades. This chapter proposes a two-sector growth model and identifies three driving forces for China’s structural transformation. Most importantly, the migration costs can be shown as a significant barrier to the reallocation process after I calibrate the model with real data. The second and the third chapters of my dissertation are devoted to the study of the technology diffusion. The second chapter is a collaborative effort with Gary Ferrier and Javier Reyes. We approach the cross-country technology diffusion from a novel perspective – the trade network can be viewed as the conduit of the technology diffusion. The question we ask is whether the trade network structure matters in the technology diffusion process. We consider 24 major technologies over the period from 1962 to 2000 and find that, in most cases, there is strong and robust evidence to suggest that the better-connected countries on the trade network tend to adopt or assimilate newer and more advanced technologies faster. However, the better-connected countries tend to have lower technology intensity if the technology has become obsolete. Finally, the third chapter is a theoretical approach to the technology diffusion. In particular, the technology diffusion across countries can be generalized as a learning process on networks. Based on a stylized learning model, this chapter examines the impact of the network structures on the speed of the diffusion process. ACKNOWLEDGEMENTS I am deeply grateful to my dissertation committee chair, Javier Reyes, for his continued guidance and encouragement and for leading me to the exciting world of network study. I owe profound thanks to my committee members, Gary Ferrier and Fabio Mendez, whose invaluable comments and help have improved my work and my critical thinking at various stages of my graduate study. I would like to thank the Department of Economics at University of Arkansas for giving me the amazing years of life and study. Last but definitely not least, this dissertation and my graduate study would not have been possible without the constant love and support of my wife, Longyan, and my parents, Zhiwen and Zhenghuai. DEDICATION To my wife, Longyan, and my parents. TABLE OF CONTENTS I. INTRODUCTION ....................................................................................................................... 1 II. CHAPTER 1 ............................................................................................................................... 3 THE ROLE OF THE MIGRATION COSTS IN CHINA’S STRUCTURAL TRANSFORMATION .................................................................................................................... 3 2.1 Introduction ........................................................................................................................... 3 2.2 The Model ............................................................................................................................. 9 2.2.1 Technology (Labor Productivity versus Total Factor Productivity) .............................. 9 2.2.2 Consumer’s Problem .................................................................................................... 11 2.2.3 Migration Decision ...................................................................................................... 12 2.2.4 Firm’s Problem ............................................................................................................ 14 2.2.5 Market Clearing ........................................................................................................... 15 2.2.6 Equilibrium .................................................................................................................. 15 2.2.7 Qualitative Analysis ..................................................................................................... 16 2.3 Numerical Exercises ........................................................................................................... 16 2.3.1 Calibration.................................................................................................................... 16 2.3.2 Counterfactual Exercises ............................................................................................. 17 2.4 Policy Implications ............................................................................................................. 19 2.5 Conclusion .......................................................................................................................... 20 References ................................................................................................................................. 28 Appendix ................................................................................................................................... 30 III. CHAPTER 2 ........................................................................................................................... 32 TECHNOLOGY DIFFUSION ON THE INTERNATIONAL TRADE NETWORK ................. 32 3.1 Introduction ......................................................................................................................... 32 3.2 Literature Review................................................................................................................ 35 3.2.1 Why Is Technology Diffusion Important? ................................................................... 36 3.2.2 Technology Diffusion in Theory ................................................................................. 37 3.2.3 Technology Diffusion in Practice ................................................................................ 39 3.2.4 Network Effects on Technology Diffusion .................................................................. 42 3.3 Trade Network and Technology Data ................................................................................. 45 3.4 Empirical Model and Results .............................................................................................. 52 3.5 Concluding Remarks ........................................................................................................... 58 References ................................................................................................................................. 67 Appendix A ............................................................................................................................... 71 Appendix B ............................................................................................................................... 73 IV. CHAPTER 3 ........................................................................................................................... 74 LEARNING ON NETWORKS .................................................................................................... 74 4.1 Introduction ......................................................................................................................... 74 4.2 Basic Learning Model ......................................................................................................... 75 4.2.1 The Building Blocks .................................................................................................... 75 4.2.2 The Initial Conditions .................................................................................................. 76 4.2.3 The Naïve Learning Algorithm .................................................................................... 76 4.2.4 Analytical and Simulation Results ............................................................................... 78 4.3 Network Properties of the Square Lattice ........................................................................... 79 4.4 Learning on a Square Lattice .............................................................................................. 82 4.4.1 The Building Blocks .................................................................................................... 82 4.4.2 The Initial Conditions .................................................................................................. 83 4.4.3 The Modified Learning Algorithm .............................................................................. 83 4.4.4 The Simulation Results ................................................................................................ 84 4.5 Conclusion .......................................................................................................................... 85 References ................................................................................................................................. 92 V. CONCLUSION ........................................................................................................................ 93