Biography:
Ernest Liu is an associate professor in Princeton’s Department of Economics. His research interests are in finance, growth, and macro-development. Ernest Liu’s research is centered around the implications of weak financial institutions for economic growth, allocation of resources, and economic development. One strand of his work uses production network theory to understand industrial policies, specifically the strong government support for upstream industries that are widely adopted in developing economies. Another strand of work shows how low, long-term interest rates affect market concentration and productivity growth; how banks with market power respond to interest rate ceilings in small business lending; and, how financial market imperfections not only distort economic allocations via underinvestment but may greatly amplify effects due to interactions across economic sectors or because the relationships between borrowers and lenders create under-development traps. He received his Ph.D. in Economics from MIT and joined Princeton’s faculty in 2019.
Student Lecture: 15 January 2026
Innovation Networks and R&D Allocation
We study the cross-sector allocation of R&D resources in an innovation network, where one sector’s past innovations may benefit other sectors’ future innovations. We solve for the optimal R&D allocation and show that a planner valuing long-term growth should allocate more R&D toward network-central sectors, but this incentive is muted for countries receiving more foreign knowledge spillovers. We derive sufficient statistics for measuring the welfare impact of improving cross-sector R&D allocation. Empirically, we build the global innovation network based on patent citations and evaluate R&D allocative efficiency across countries. For the US, improving R&D allocation could generate 8% welfare gains.
Faculty Lecture: 16 January 2026
Innovation Networks and R&D Allocation
We study the cross-sector allocation of R&D resources in an innovation network, where one sector’s past innovations may benefit other sectors’ future innovations. We solve for the optimal R&D allocation and show that a planner valuing long-term growth should allocate more R&D toward network-central sectors, but this incentive is muted for countries receiving more foreign knowledge spillovers. We derive sufficient statistics for measuring the welfare impact of improving cross-sector R&D allocation. Empirically, we build the global innovation network based on patent citations and evaluate R&D allocative efficiency across countries. For the US, improving R&D allocation could generate 8% welfare gains.