nep-cse New Economics Papers
on Economics of Strategic Management
Issue of 2018‒08‒20
ten papers chosen by
João José de Matos Ferreira
Universidade da Beira Interior

  1. Fostering place-based innovation and internationalization – the new turn in German technology policy By Dohse, Dirk; Fornahl, Dirk; Vehrke, Julian
  2. Innovation clusters effects on adoption of a general purpose technology under uncertainty By Iritié, B. G. Jean Jacques
  3. Innovation and the Patterns of Trade: A Firm-Level Analysis By Ana Maria Santacreu; Liliana Varela
  4. Productivity of Slovenian Firms By Polona Domadenik; Bojan Ivanc; Denis Marinšek
  5. Addressing the innovation gap: Lessons from the Stairway to Excellence (S2E) project By Nida Kamil Ozbolat; Nicholas Harrap
  6. Fear the walking dead: zombie firms, spillovers and exit barriers By Christian Osterhold; Ana Fontoura Gouveia
  7. Growth through acquisition of innovations By Galina Besstremyannaya; Richard Dasher; Sergei Golovan
  8. The IT Revolution and the Globalization of R&D By Lee G. Branstetter; Britta M. Glennon; J. Bradford Jensen
  9. Guiding investments in place-based development. Priority setting in regional innovation strategies By Gunter Clar
  10. Earnings Dynamics: the Role of Learning, Human Capital, and Performance Incentives By Braz Camargo; Elena Pastorino; Fabian Lange

  1. By: Dohse, Dirk; Fornahl, Dirk; Vehrke, Julian
    Abstract: Since the mid-1990s German technology policy has experienced a paradigmatic shift from standard grant schemes towards a region-oriented and competition-based R&D policy. Currently, a new policy experiment, the InterClust contest, is under way, trying to simultaneously foster place-based innovation, R&D internationalization and the internationalization of innovative places. The current paper analyses the new policy, relating it to the recent literatures on heterogeneous firms and on cluster-life cycles, and presents results from a firm survey performed in 21 winner regions of InterClust. Findings show that the new funding scheme takes insights from recent theoretical developments into account and addresses important impediments to firm and cluster internationalization. Although it is too early for an overall assessment, it is argued that the long-term impact will critically depend on the inflow of heterogeneous knowledge and the strength of intra-regional mobilization effects.
    Keywords: industrial clusters,knowledge spillovers,technology policy
    JEL: O30 R11
    Date: 2018
  2. By: Iritié, B. G. Jean Jacques
    Abstract: This paper analyzes the effect of innovation clusters on the adoption of a gen- eral purpose technology (GPT) and on firms R&D investment levels in im- perfect information situation. To do this, we developed a theoretical model of vertical relation, described as a four-step game between an upstream firm providing innovative GPT and an innovative downstream associated sector, integrator of this technology. The downstream sector ignores the quality of the GPT and we model the innovation cluster as a coordination mode of firms, improving the probability of the downstream firm to receive information about the quality of the GPT technology. Then, we determine firms equilibria (prices and technological qualities) and we showed that the effect of innovation clus- ters on the choice of qualities, the adoption behavior, levels of investment in R&D as well as that social welfare depends on the quality of R&D activities carried out before the establishment of the cluster and a threshold effect or cluster critical mass; if the critical mass in terms of information sharing and interaction is not reached, the cluster may have negative effects. In other words, the consensual idea of expected positive effects of innovation clusters must be put into perspective.
    Keywords: innovation clusters,general purpose technology,technology adoption,technology complementarity,uncertainty,critical mass
    JEL: C02 D82 D83 L15 O3
    Date: 2017
  3. By: Ana Maria Santacreu (Federal Reserve Bank of Saint Louis); Liliana Varela (University of Warwick)
    Abstract: What are the effects of trade liberalizations on firms' innovation incentives? What types of a firm's innovations are more affected by these liberalizations: product or process innovation, basic or fundamental innovation? How do changes in a firm's innovation activities after trade liberalizations affect a country's patterns of trade? We examine these questions both empirically and theoretically, through the lenses of a quantifiable model of trade and innovation. Recent empirical studies have found that trade liberalizations substantially affect firms' innovation activities (see Bloom, Draca, and Van Reenen (2015), Autor et al (2016), Coelli, Moxnes and Ulltveit-Moe (2016)). However, there is no consensus on the direction of the effect on innovation. Bloom, Draca, and Van Reenen (2015) and Coelli, Moxnes and Ulltveit-Moe (2016) find that declines in trade frictions increase innovation, whereas Autor el al. (2016) find that trade liberalization reduces firms' patens and R&D expenses. The ambiguity of these results shows the need of structural models to understand the channels through which trade affects firms' incentives to innovate. These models can quantify the importance of the market size and foreign competition channels embedded in trade liberalizations, and rationalize the ambiguity of the empirical findings. Moreover, these models can shed light on the effect that changes in firms' innovation incentives has on a country's patterns of trade. Our first contribution is empirical. We provide empirical evidence on the effect that the accession of China to the WTO in the early 2000s had on the innovation activities of French firms. In particular, we break down innovation activities by categories and study what activities were more affected by changes in trade frictions. We merge three datasets reporting information on firms' R&D and innovation activities, trade and balance sheets over the period 1993-2016. Our R&D data comes from the national survey on firms' R&D and innovation activities and reports information on R&D expenditures, patents, product and process innovation, basic and fundamental innovation, area of research, among others. The custom and balance sheet data provide information on all firms' exports and imports by country destination and origin, sales, capital, and employment. These extensive datasets allow us to build detailed measures of the different activities involved in the innovation process over a long panel, and to measure firms' exposure to the Chinese trade shock. Our second contribution is theoretical. We develop and quantify a model of trade, innovation and firms' dynamics to explain our empirical findings. From a theoretical perspective, the effect of a decline in trade frictions depends on two forces: (i) a market size effect, and ii) a foreign competition effect. The first effect increases investment in innovation, as firms benefit from serving a larger market. The second effect decreases the incentives to innovate, as firms face larger competition from abroad. In this case, the direction of the evolution of comparative advantage determines whether a firm finds it or nor profitable to invest in innovation. Which force dominates determines whether the net effect on innovation after a trade liberalization is positive, negative or neutral. One sector-sector models of Ricardian trade without knowledge spillovers predict that decreases in trade frictions have negligible effects on innovation since the market effect cancels out the foreign competition effect (see Atkeson and Bustein (2010) and Buera and Oberfield (2017)). A recent attempt to model these channels has been done by Sampson (2016), Somale (2016), and Cai, Li and Santacreu (2017), among others, by introducing sectoral linkages in production and knowledge spillovers to previous models of trade and innovation. These papers do not model explicitly the role of the firm in taking innovation, export, entry and exit decisions. Our model builds on Atkeson and Burstein (2010) and Atkeson and Burstein (2017). Atkeson and Burstein (2010) develop a model of trade and innovation without knowledge spillovers, in which innovation is modeled as the introduction of new products in the economy. We augment their model by adding knowledge spillovers and process and product innovations of incumbent firms as in Atkeson and Burstein (2017), who study the effect of innovation policies in a closed economy. In the model, the dynamics of productivity are driven endogenously by innovation of entering forms and product and process innovation of incumbent firms. Changes in trade costs have a direct effect on both product and process innovation in the economy. Our model allows us to disentangle the role of the market size effect and the foreign competition effect on these results. Furthermore, changes in innovation translate into changes in productivity, which in turn has an effect on the patterns of trade of the economy. We calibrate the model to data on innovation and trade for French firms during the period 1996-2016. We then perform a counterfactual exercise that consists of a reduction in trade frictions between China and France, and analyze quantitatively the effect that such trade reform has on innovation and the patterns of trade. Our paper provides a unified framework of trade and innovation at the firm level that allows us to obtain aggregate implications of trade liberalizations.
    Date: 2018
  4. By: Polona Domadenik; Bojan Ivanc; Denis Marinšek
    Abstract: We analyse productivity differences across non-financial Slovenian firms over the period 1994-2015. In particular, we investigate the impact of different factors (including size, ownership, investment activity and industry characteristics) on firms' total factor productivity (TFP), competitiveness and internationalisation. Large corporates appear to have the highest level of TFP, more than 50% above the average, and show stronger TFP growth. Exporting firms also show higher TFP growth than other firms, particularly after the recent crisis. Using a complete database of R&D subsidies over 1998-2015, the paper identifies R&Dintensive firms and investigates the impact of R&D investment on productivity and profitability. It is found that subsidies did not significantly increase firm-level productivity, once size, industry and year effects are taken into account. This could be because, during the recession (2009-2015), subsidies were granted to firms in difficulties.
    JEL: D22 D24 L25
    Date: 2018–03
  5. By: Nida Kamil Ozbolat (European Commission - JRC); Nicholas Harrap (European Commission - JRC)
    Abstract: There is a considerable territorial disparity in terms of research and innovation (R&I) performance within Europe between EU15 and EU13 Member States (MSs) . The two biggest European funds, European Structural and Investment Funds (ESIF) and Horizon 2020 (H2020), aim at supporting the development of European competitiveness, growth, knowledge generation and as well as closing the innovation gap and promoting research excellence across Europe. Smart Specialisation Strategies (S3) play a key role in fostering an efficient and inclusive Research and Innovation (R&I) ecosystem by creating the right framework for focused investments based on selected high value added priorities and a shared vision of territorial development. Also, the European Commission's project Stairway to Excellence (S2E) is focussed on the provision of assistance to EU MSs and Regions with emphasis on promoting R&I excellence and maximising the specific value added of S3 investments such as the capacity building to support for R&I activities and exploitation of research results for raising the overall social/economic impact. This report summarises the main outcomes of the activities undertaken by the S2E team during the initial phase of the project from June 2014 to January 2017). It focuses on the S2E Country Reports – produced by the national independent experts and provided analysis on the optimal use of key European R&I funds – and the Joint Statements of S2E National Events – an outcome of national events covering the issues and main conclusions - as well as the other analytical work of the project. By picking those issues and actions common to more than one country and frequently mentioned, the main bottlenecks and possible policy actions to address these issues are summarised within three dimensions; namely, quality of R&I governance, capacity building, and innovation and commercialisation. This analysis and particularly the policy recommendations offer solutions for these issues that can also contribute to closing the innovation gap in Europe, which is demonstrated by the annual European Innovation Scoreboard comparing the performance of the EU MSs.
    Keywords: Innovation gap, Research Excellence, Innovation, European Funding, Smart Specialisation, ESIF, Horizon 2020, Cohesion Policy, Stairway to Excellence, S2E
    Date: 2018–07
  6. By: Christian Osterhold; Ana Fontoura Gouveia
    Abstract: Productivity growth is slowing down among OECD countries, coupled with increased misallocation of resources. A recent strand of literature focuses on the role of non-viable firms ("zombie firms") to explain these developments. Using a rich firm-level dataset for one of the OECD countries with the largest drop in barriers to firm exit and restructure, we assess the role of zombies on firm dynamics, both in the extensive and intensive margins. We confirm the results on the high prevalence of zombie firms, significantly less productive than their healthy counterparts and thus dragging aggregate productivity down. Moreover, while we find evidence of positive selection within zombies, with the most productive restructuring and the least productive exiting, we also show that the zombies' productivity threshold for exit is much lower than that of non-zombies, allowing them to stay in the market, distorting competition and sinking resources. Zombie prevalence curbs the growth of viable firms, in particular the most productive, harming the intra-sectoral resource reallocation. We show that a reduction in exit and restructuring barriers promotes a more effective exit channel and fosters the restructuring of the most productive, highlight the role of public policy in addressing zombies' prevalence, fostering a more efficient resource allocation and enabling productivity growth.
    JEL: D24 E22 E24 G33 J24 L25
    Date: 2018
  7. By: Galina Besstremyannaya (Centre for Economic and Financial Research at New Economic School); Richard Dasher (Stanford University); Sergei Golovan (New Economic School)
    Abstract: The paper develops a growth model with acquisition of endogenous innovations. The model builds on the microeconomic evidence about acquisitions in the technology economy: acquirers are innovative firms, which regard acquisitions as a complementary strategy to their R&D investment. Targets are small firms and leaders on the markets for their products. Acquirers are capable of implementing a higher quality improvement of the products of the targets. The model includes the government, which collects corporate profit tax and redistributes it to provide subsidies for innovations and acquisitions. We quantify the model using the 2000-2016 financial data for Japanese firms, matched with their patents. The estimates prove the model's predictions about a positive effect of acquisitions on growth. The impact of acquisitions on the R&D intensity is related to the type of complementarity between innovation and acquisition strategies. The effect of subsidies towards the acquisitions is linked to the parameters of the cost function and reflects the association between the costs of acquisitions and R&D.
    Keywords: innovation, endogenous growth, acquisition, social planner, patents
    JEL: O11 O38 O40 O53
    Date: 2018–08
  8. By: Lee G. Branstetter; Britta M. Glennon; J. Bradford Jensen
    Abstract: Since the 1990s, R&D has become less geographically concentrated, and has seen especially fast growth in emerging markets. One of the distinguishing features of the R&D globalization phenomenon is its concentration within the software/IT domain; the increase in foreign R&D has been largely concentrated within software and IT-intensive multinationals, and new R&D destinations are also more software and IT-intensive multinationals than traditional R&D destinations. In this paper we document three important phenomena: (1) the globalization of R&D, (2) the growing importance of software and IT to firm innovation, and (3) the rise of new R&D hubs. We argue that the shortage in software/IT-related human capital resulting from the large IT- and software-biased shift in innovation drove US MNCs abroad, and particularly drove them abroad to “new hubs” with large quantities of STEM workers who possessed IT and software skills. Our findings support the view that the globalization of US multinational R&D has reinforced the technological leadership of US-based firms in the information technology domain and that multinationals’ ability to access a global talent base could support a high rate of innovation even in the presence of the rising (human) resource cost of frontier R&D.
    JEL: F23 O32 O57
    Date: 2018–06
  9. By: Gunter Clar
    Abstract: Optimising priority setting for higher returns on investment. As the Structural Funds (ESIF) constitute a large part of the EU budget, considerable contributions to the overall EU2020 Growth Strategy are expected. In the 2014-2020 programming period, there is a strong focus on Research and Innovation (R&I) with the aim to boost ESIF impact on competitiveness and broader benefits (public and private returns) across the EU. Towards this larger aim, R&I Strategies for Smart Specialisation (RIS3) are means to concentrate investments in place-based, innovation-oriented activities, which are well positioned vis-Ã -vis global value chains, and also related to territorial or sectoral strategies with other regions. Recent assessments show that the concentration of investments towards this goal has not everywhere been optimally achieved, which is often traced back to the types of priorities selected. At first sight, this can be attributed to the nature of the strategy processes, the innovation actors involved, and their methodological and strategic competences. Looking deeper, especially where Managing Authorities and ESIF applicants/recipients had little former experience with R&I priority setting, weaknesses lie in understanding state-of-the-art concepts underlying R&I strategies, in applying the broad spectrum of R&I support tools, and in the ability to guide a range of R&I related interaction processes continually and competently. Against this backdrop, the report sets out to synthesise the dispersed knowledge on a range of issues relevant for the success of priority setting processes and practices in innovation policies and strategies. Outlining changing contexts, rationales and approaches of priority setting in R&I policies leads to the "new prioritisation logic" guiding RIS3 exercises. This is followed by two main lines aiming to facilitate improved priority setting: better understanding the wider innovation policy context of RIS3, and making better use of Strategic Policy Intelligence (SPI) and other support tools (including learning from private sector strategies) to structure and guide policy cycles, and to implement place-appropriate policy mixes. Evidence (case studies) on effective priority setting processes in RIS3-type exercises and policy recommendations complete the report.
    Keywords: Priority setting, Regional innovation strategies, Place-based policies
    Date: 2018–07
  10. By: Braz Camargo (Sao Paulo School of Economics - FGV); Elena Pastorino (Stanford University); Fabian Lange (McGill University)
    Abstract: Using both public individual survey data and proprietary firm personnel records, we document that the importance of performance pay declines at the end of a career. This evidence is at odds with the implication of models of implicit and explicit performance incentives that have attempted to explain the life-cycle profile of the variable component of wages. We provide a novel model that integrates uncertainty and learning about ability, human capital acquisition, and performance incentives to account for the life-cycle profile of individual wages and provide a rationale for the declining importance of the pay-for-performance component of wages with experience. We analytically characterize the equilibrium wage contract in this environment, derive its qualitative properties, and decompose the pay-for-performance component of the equilibrium wage into different terms. These terms capture the standard trade-off between risk and incentives arising in contexts of moral hazard, the desire to hedge against the risk inherent in learning about ability, and the changing strength of reputational and human capital investment motives over time. We prove the model is identified based on a panel of wages. We derive estimators of the model's primitive parameters, estimate the model, and use the estimated parameters to measure the relative contribution of the three sources of wage dynamics we nest---learning, human capital acquisition, and performance incentives---to the life-cycle profile of total wages and their variable component. According to our preliminary estimates, performance incentives seem to be qualitatively and quantitatively key to explaining the life-cycle profile of wages and variable pay, despite the declining importance of variable pay relative to fixed pay over time.
    Date: 2018

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