Sapienza Ricerca 2011

The research aims at exploring causes and consequences of productivity dynamics in a context of imperfect markets. The low levels of productivity growth observed in Italy can be explained by the interplay of several imperfections. An imperfect financial system showed itself as unable to efficiently diversify the risks stemming from innovation. An imperfect labor market characterized by capital-skill complementarities, contractual incompleteness and the presence of different types of worker produced duality and perverse incentives to producers. In an imperfect market for goods the perverse incentives coming from the labor market led, on the supply side, risk averse and financially constrained traditional producer to increase unskilled labor input and to reduce capital accumulation. In the presence of real rigidities in the labor market and of firm-specific capital, when the R&D sector does generate innovations, the endogenous dynamics of the TFP can change the cyclical dynamics triggered by shocks. Looking at TFP as endogenous to the accumulation process, the opposite direction of causality prevented innovation to generate a positive production externality having permanent effects on the level of potential output.