Thang Nguyen

Economic Research

Updated 10/18/2008


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My current research interests cover, nonexclusively, technological progress, growth, and development. Specifically, I am working on quality innovation at both micro and macro levels, and in both closed-economy and open-economy contexts. My questions revolve around what causes quality innovation, how to measure quality changes at the aggregate levels, and how quality changes affect tax policies. Besides the working papers presented below, my work in progress aims at differences when introducing productivity driven quality into closed-economy RBC/growth and international RBC/growth models.


“Productivity Driven Quality: Theory and US Calibration” (JOB MARKET PAPER) -- paper

How does relative productivity affect relative quality? In the United States, how much variation in services-goods relative quality can be accounted for with changes in relative productivity alone? In the model, labor is used for both quantity production and quality innovation. A change in productivity induces a reallocation of labor, leading to quality variation. This study finds that relative productivity's effect on relative quality depends on how substitutable the products are (substitution parameter) and how easy it is to improve quality (innovation parameter). Specifically, productivity and quality have a negative correlation for low-range substitutability and a positive correlation for medium-range substitutability, where the medium range depends on the innovation parameter. Applying the model to the US services-goods economy from 1970-2006 using NIPA data, the study finds that productivity plays a quantitatively important role in quality innovation. In addition, (relative) productivity and quality of the services sector have a negative correlation.


“Separating Productivity and Quality Effects from Relative Prices” -- paper

Based on a general equilibrium model, we derive a relative price function which can be decomposed into productivity and quality effects. We then develop a method for inferring relative quality changes and apply that to US services versus US goods using NIPA data from 1946-2006. First, relative quality was decreasing after 1946 and has been increasing since the 1970s. Second, relative productivity and quality are negatively correlated, suggesting an endogenous link between the two. Third, productivity changes alone cannot fully explain the evolution of the services-goods relative price. This suggests that ignoring quality variations when explaining relative prices or exchange rates can lead to incorrect conclusions.


“Technological Progress in Races for Product Supremacy” -- paper

How does market structure affect quality innovation efforts and social welfare? This study considers three allocation mechanisms in a model of dynamic quality innovation: monopoly, duopoly, and the social planner. In this model, quality advances depend upon a stock of accumulated know-how, allowing for more flexible innovation strategies and direct comparisons of technology frontiers which show the largest reachable know-how stocks. When products are perfectly substitutable, the technology frontier is highest under the social planner, lower under duopoly, and lowest under monopoly. However, when products are less substitutable, a duopoly may surpass the technology frontier under the social planner along an unbalanced innovation path. Ex-ante and long-run social welfare are always highest under the social planner and lowest under monopoly.


Work in Progress

Productivity Divergence, International Capital Mobility, and Relative Quality Innovation

New Insights from an RBC Model with Productivity Driven Quality