Dan's Biz Bookshelf: 'Getting Naked: A Business Fable'
The Chemical Connection: Common Misconceptions in Wet Processing
It’s Only Common Sense: Selling to Engineers
How Network Effects Hurt Economies
April 6, 2016 | MITEstimated reading time: 5 minutes
Other scholars are impressed with the work, which the researchers presented at an NBER conference on macroeconomic matters in 2015 and is being published along with others’ responses. One of those published responses is by Xavier Gabaix, a professor of finance at New York University’s Stern School of Business, who calls the current work “a very exciting line of research” and adds that the paper “is a very useful step forward.”
Tracing the propagation of shocks is something Acemoglu, Akcigit, and Kerr do “particularly well,” Gabaix adds. And he believes the “method and findings might be [best] extended empirically and conceptually” when it comes to understanding “multipliers,” that is, the way investment in one industrial area creates larger amounts of growth in general.
This could have policy implications: Proponents of government investment, such as the so-called stimulus bill of 2009, the American Recovery and Reinvestment Act, have contended that government spending creates a “multiplier effect” in terms of growth. Opponents of such legislation sometimes assert that government spending crowds out private investment and thus does not generate more growth than would otherwise occur. In theory, a more granular understanding of these network effects could help describe and define what a multiplier effect is, and in which industrial areas it may be the most pronounced.
To be clear, Acemoglu adds, it is always hard to define precisely what the origins of a negative economic shock may be. Is it overseas competition, a lack of innovation, or other factors — some of which may indeed be economy-wide in nature? The more economists can identify such shocks, the better they can use the current paper’s framework to trace their effects.
“There are many things going on, and there is the possibility that a whole [economic] area has been hit by a negative shock,” Acemoglu says. “It’s hard to distinguish all of these channels. That’s why you need systematic work.”
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