nep-ino New Economics Papers
on Innovation
Issue of 2005‒11‒19
nineteen papers chosen by
Koen Frenken
Universiteit Utrecht

  1. The Value of Knowledge Flows: Evidence from Patent Citations Data By Yi Deng
  2. Banks and Innovation: Microeconometric Evidence on Italian Firms By Luigi Benfratello; Fabio Schiantarelli; Alessandro Sembenelli
  4. How Does Information Technology Really Affect Productivity? Plant-Level Comparisons of Product Innovation, Process Improvement and Worker Skills By Ann P. Bartel; Casey Ichniowski; Kathryn L. Shaw
  5. Competition Policy and Innovation By Peter Møllgaard; Jo Lorentzen
  7. Innovation and Idiosyncratic Risk By Mariana Mazzucato; Massimiliano Tancioni
  8. Financing Technology: An Assessment of Theory and Practice By Pasquale Lucio Scandizzo
  9. Management characteristics, collaboration and innovative efficiency: evidence from UK survey data By Andy Cosh; Xiaolan Fu; Alan Hughes
  10. Contracting for the transfer of technology within multinational corporations: Empirical evidence from Spain By Mendi, Pedro
  11. Sustainability and substitution of exhaustible natural resources. How resource prices affect long-term R&D-investments By Lucas Bretschger; Sjak Smulders
  12. Technological Complexity, R&D and Education: Some Pleasant Arithmetic By Peter Thompson; Mihaela Pintea
  13. A New Indicator of Technological Capabilities for Developed and Developing Countries (ArCo) By Daniele Archibugi
  14. Venture capitalists' selection process: the case of biotechnology proposals By Baeyens, K.; Vanacker, T.; Manigart, M.
  15. Impact of Public R&D Financing on Private R&D: Does Financial Constraint Matter? By Jyrki Ali-Yrkkö
  16. Economics of technological change and the natural environment: how effective are innovations as a remedy for resource scarcity? By Lucas Bretschger
  17. Investment-Specific Technical Change and the Production of Ideas By Roberto M Samaniego
  18. Customers'usage of self service technology in retail setting By Weijters, B.; Schillewaert, N.; Rangarajan,D.; Falk, T.
  19. Sustainable Development: Renewable Resources and Technological Progress By Simone Valente

  1. By: Yi Deng
    Abstract: This paper aims at quantifying the economic value of knowledge spillovers by exploring information contained in patent citations. I estimate a market valuation equation for semiconductor firms during the 1980s and early 1990s, and find an average value in the amount of $0.6 to 1.2 million "R&D-equivalent" dollars for the knowledge flows as embodied in one patent citation. For an average semiconductor firm, such an estimate implies that the total value of knowledge spillovers the firm received during the sample period could be as high as half of its actual total R&D expenditures in the same period. This provides a direct measure of the economic value of the social returns or externalities of relevant technological innovations. I also find that self citations are more valuable than external citations, indicating a significant amount of tacit knowledge or know-how spillovers that occur within the firm
    Keywords: Technological Innovations, Knowledge Spillover, R&D, Patent, Patent Citations, Tobin's Q
    JEL: O31 O33 O38
    Date: 2005–11–11
  2. By: Luigi Benfratello (Università di Torino); Fabio Schiantarelli (Boston College); Alessandro Sembenelli (Università di Torino)
    Abstract: This paper contains a detailed empirical investigation of the effect of local banking development on firms' innovative activities, using a rich data set on innovation at the firm level for a large number of Italian firms over the 90's. There is evidence that banking development affects the probability of process innovation, particularly for small firms and for firms in high(er) tech sectors and in sectors more dependent upon external finance. There is also some evidence that banking development reduces the cash flow sensitivity of fixed investment spending, particularly for small firms, and that it increases the probability they will engage in R&D.
    Keywords: Banks, Financial Development, Innovation, R&D, Investment
    JEL: D24 G21 G38
    Date: 2005–10–30
  3. By: Maria Jesus Nieto; Lluis Santamaría
    Abstract: In the current competitive scenario, firms are driven to introduce products with a higher degree of novelty. Consequently, there is a growing need to understand the critical success factors behind radical innovation. Specifically, this work empirically and theoretically analyses the role of different types of collaborative networks in achieving product innovation and, more precisely, the degree of novelty. Using a longitudinal data of Spanish manufacturing firms, our results show that the continuity on the co-operative strategy, the type of partner and the diversity of collaborative networks are critical factors in achieving a higher degree of novelty in product innovation.
  4. By: Ann P. Bartel; Casey Ichniowski; Kathryn L. Shaw
    Abstract: This study presents new empirical evidence on the relationship between investments in new computer-based information technology (IT) and productivity by investigating several plant-level mechanisms through which IT could promote productivity growth. We have assembled a data set on plants with a common production technology in a narrowly defined industry - valve manufacturing - to study the effects of new IT on product innovation, production process improvements, employee skills and work practices. The homogeneity of the plants' production processes within this narrowly defined industry together with the estimation of longitudinal models eliminate many sources of unmeasured heterogeneity that could confound productivity comparisons in more aggregate data and in broader samples. The three main results of this study highlight how the adoption of new IT-enhanced machinery involves much more than just the installation of new equipment on the factory floor. We find that adoption of new IT-enhanced equipment (1)alters business strategies, moving valve manufacturers away from commodity production based on long production runs to customized production in smaller batches; (2)improves the efficiency of all stages of the production process with reductions in setup times supporting the change in business strategy and (3)increases the skill requirements of workers while promoting the adoption of new human resource practices.
    JEL: O33 J24 L25
    Date: 2005–11
  5. By: Peter Møllgaard (Copenhagen Business School); Jo Lorentzen (Human Sciences Research Council, Cape Town, South Africa)
    Abstract: We briefly review the rationale behind technological alliances and provide a snapshot of their role in global competition, especially insofar as it is based around intellectual capital. They nicely illustrate the increased importance of horizontal agreements and thus establish the relevance of the topic. We move on to discuss the organisation of industries in a dynamic context and draw out consequences for competition policy. We conclude with an outlook on the underlying tensions between technology alliances, competition policy, and industrial policy.
    Keywords: competition policy; innovation; alliances; industrial policy
    JEL: L4 L5 O31
  6. By: Rainer Andergassen (Economics Università di Bologna); Franco Nardini
    Abstract: This paper attempts to generalise some results obtained in previous work showing the conditions under which paradigm setters emerge. We distinguish two different but definitely complementary and overlapping ways through which searching and learning occur. The first exploits the spillover potential that lies in a firm's network and thanks to which gathering innovation-useful information is actually possible. The second rests with the autonomous capacity that a firm possesses in order to carry out in-house innovative search. While these two searching processes not only coexist but are also reciprocally sustaining, we find it expedient to separate them by integrating a knowledge diffusion mechanism that propagates technological capabilities with an independent stochastic process capturing innovation arrivals due to internal R.&D. A network's evolution depends on how firms assess their performance in terms of innovation-enabling spillovers. In a bounded rationality framework, firms normally explore a limited part of the firms' space and require a protocol to target their information gathering efforts. The paper addresses this issue by designing a routinised behaviour according to which firms periodically reshape the neighbourhood that they observe to glean information by reassessing other firms' contributions to their own capability. The way the specific neighbour-choosing routine is accordingly organised determines in a significant way firms' average innovative capability. This feature is modelled by changing the span of network observation from a very broad setting, the whole economy, to a very narrow one, namely the most proximate neighbourhood membership. The economy is further portrayed as a collection of cognitively heterogeneous agents possessing firm specific knowledge and, thus, firm specific innovative capability. We also find it expedient to classify this assumed population according to their capability to capture broadcast information. This procedure implies viewing the economy as an ensemble of areas of cognitive exchange within which knowledge spillovers flow with equal ease. This approach to modelling interaction bears an important implication: the choice of new neighbours poses the problem of a trade-off between easily obtainable information, yet carrying low innovation empowering content, and hard to acquire, because cognitively distant, information but possibly conveying high capability contributions. To keep the model mathematically tractable, we formalise the features stated above by means of a linear system in which technological capabilities are made to depend on a matrix of interaction with evolving neighbours as well as on a vector of in-house generated knowledge. The model is then simulated to determine the emergent properties of neighbourhood formation and stability together with average capability
    Keywords: Paradigm setters, Netwoks, Technical Change, Bounded Rationality
    JEL: L14 O33
    Date: 2005–11–11
  7. By: Mariana Mazzucato (Economics Open University); Massimiliano Tancioni
    Abstract: The paper studies whether “idiosyncratic riskâ€, i.e. the degree to which firm and industry specific returns are more volatile than aggregate market returns, is higher in innovative industries which are characterized by more risk and uncertainty. Volatility is studied both at the industry level (for 34 different industries from 1974-2003) and at the firm level (for 5 industries with different levels of innovativeness: biotech, pharmaceuticals, computers, textile, agriculture). Findings are mixed. A relationship between innovation and volatility emerges most strongly with firm level data, when firm dimension is accounted for, and when time varying volatility is explicitly studied via GARCH analysis. The latter highlights the distinctive behavior of returns during the course of the industry life-cycle.
    Keywords: idiosyncratic risk, volatility, innovation, industry life cycle
    JEL: G12 L11
    Date: 2005–11–11
  8. By: Pasquale Lucio Scandizzo (University of Rome II)
    Abstract: Financing technology poses a special challenge to economic institutions for several reasons. First, the uncertainty surrounding all the investment decisions is particularly acute and pervasive in the case of R&D, as well as developing and testing process and product innovation. Second, while the banks appear to have an important role to play, for many types of innovative businesses, they cannot be the sole source of financing. Third, technology ventures appear to face a basic trade off between profit and growth, which may be exacerbated by a difficult relationship with a credit institution. The paper examines these questions both theoretically and empirically, focusing on the US market as the leading financial center capable of providing imaginative solutions and on the Arab countries as a case study of developing economies facing a financial and institutional constraints.
    Keywords: Innovation, finance; growth, new economy, risk evaluation, credit supply, Arab countries, government policies, science and technology parks
    Date: 2004–01–16
  9. By: Andy Cosh; Xiaolan Fu; Alan Hughes
    Abstract: This paper explores the impact of management characteristics and patterns of collaboration on a firmÕs innovation performance in transforming innovation resources into commercially successful outputs. These questions are investigated using a recent firm level survey database for 465 innovative British small and medium enterprises (SMEs) over the years 1998-2001. Both Data Envelopment Analysis (DEA) and Stochastic Frontier Analysis (SFA) are employed to benchmark a firmÕs innovative efficiency against best practice. Quality and the variety of innovations are taken into account by combining Principal Component Analysis (PCA) with DEA. We find evidence suggesting that the innovative efficiency of SMEs is significantly affected by their management characteristics and collaboration behaviour. Collaboration, organisational flexibility, formality in management systems and incentive schemes are found to contribute significantly to a firmÕs innovative efficiency. Managerial share-ownership also shows some positive effect. The importance of these effects, however, varies across different sectors. WE find that innovative efficiency in high-tech SMEs is significantly enhanced by collaboration, formal management structure and training; and that in medium- and low-tech SMEs is significantly associated with managerial ownership, incentive schemes and organisational flexibility.
    Keywords: management characteristics, collaboration, innovative efficiency
    JEL: D24 O30 O32 L20 M11
  10. By: Mendi, Pedro (University of Navarra)
    Abstract: This article analyzes a sample of contracts that includes transfers of technology to Spanish subsidiaries in 1991. First, know-how is more likely transmitted within multinationals than between unrelated firms, highlighting the key role of multinationals in the diffusion of tacit knowledge. The determinants of scheduled payments are also studied to find, among other things, that multinationals adjust scheduled payments depending on differences in taxes between the source and host countries.
    Keywords: Contract; technology; multinationals:
    Date: 2005–09–07
  11. By: Lucas Bretschger (Institute of Economic Research (WIF), Swiss Federal Institute of Technology Zurich (ETH)); Sjak Smulders (Tilburg University, Department of Economics)
    Abstract: Traditional resource economics has been criticised for assuming too high elasticities of substitution, not observing material balance principles and relying too much on planner solutions to obtain long-term growth. By analysing a multi-sector R&Dbased endogenous growth model with exhaustible natural resources, labour, and knowledge capital as inputs, the present paper addresses this critique. We study transitional dynamics and the long-term growth path and identify conditions under which firms keep spending on research and development so that growth is sustained. We demonstrate that long-run growth can be sustained under free market conditions even when elasticities of substitution between man-made inputs and resources are low.
    Keywords: Growth, non-renewable resources, substitution, investment incentives, endogenous technological change, sustainability
    JEL: Q20 Q30 O41 O33
    Date: 2004–06
  12. By: Peter Thompson; Mihaela Pintea (Economics Florida International University)
    Abstract: Persistent trends in R&D intensity and educational attainment, in conjunction with the absence of any trend in per capita income growth, are inconsistent with the predictions of most growth models. Jones (2002) has made a strong point that the data are consistent with out-of-steady state predictions of his semi-endogenous growth model. He concludes that when secular increases in R&D intensity and educational attainment will come to an end, income growth can be expected to decline dramatically. In this paper we suggest an alternative explanation that predicts no such collapse. We assume that increases in productivity can result from formal R&D effort and from learning by doing. However, during the latter half of the 20th century, increased technological complexity has made passive learning more difficult. We argue that firms have consequently substituted R&D for learning and, because skilled workers can overcome the challenges of learning in a more complex environment more readily than can unskilled workers, the relative demand for skill has risen. The consequent increase in the returns to skill in turn has induced an increase in educational attainment. Our theory explains how increases in R&D intensity and educational attainment can be equilibrium responses to changing conditions that make growth more difficult. Despite greater complexity, R&D and educational attainment must, as in Jones (2002), eventually cease to grow. But, in stark contrast to Jones, our theory does not imply that income and productivity growth will collapse once the new steady state is reached. We formalize these ideas with a general equilibrium model of R&D and learning in the spirit of earlier work by Young (1991, 1993), Lucas (1993), and Parente (1994). For simplicity we assume that R&D is not necessary to develop new product generations, which arrive to each firm randomly according to an exogenous Poisson process. Instead, R&D is assumed to influence the productivity of a new product at the time it is launched, and the more R&D that is conducted, the less there is left to learn. Skilled labor is a necessary input into R&D, and it also enhances a firm’s ability to learn in production. We further assume that the value of skilled labor in learning increases the more difficult learning is. Thus, we show that an increase in the difficulty of learning raises the demand for skilled workers in R&D and in production. The immediate effect is to increase the price of skill. The initial increase in wages of skilled workers is offset over time by an induced rise in the supply of skills. To sustain an increased supply of skills in the long run wage inequality must remain higher than before the increase in the difficulty of learning. These dynamic responses are obtained in a setting in which the aggregate rate of growth is constant. Thus, a reversal in the difficulty of learning would induce a decline in R&D and in the returns to skill, but no decline in economic growth.
    Keywords: economic growth, R&D, learning
    JEL: O40
    Date: 2005–11–11
  13. By: Daniele Archibugi (Italian National Research Council (CNR) - Istituto di Studi sulla Ricerca e Documentazione Scientifica (ISRDS); London School of Economics & Political Science (LSE); Universit Catholique de Louvain la Neuve)
    Abstract: This paper devises a new indicator (ArCo) of technological capabilities that aims at accounting for developed and developing countries. Building on similar attempts as those devised by UN Agencies, including the UNDP Human Development Report's Technology Achievement Index (TAI) and UNIDO's Industrial Performance Scoreboard, this index takes into account a number of other variables associated with technological change.Three main components are considered: the creation of technology, the technological infrastructures and the development of human skills. Eight sub-categories have also been included. ArCo also allows for comparisons between countries over time. A preliminary attempt to correlate ArCo to GDP is also presented.
    Keywords: Technology creation, infrastructures, human skills, development index
    Date: 2004–01–19
  14. By: Baeyens, K.; Vanacker, T.; Manigart, M.
    Abstract: The paper analyses venture capitalists’ selection process in biotechnology ventures. Biotech ventures operate in an extremely risky environment making this an interesting research setting. The majority of venture capitalists exclude certain biotech sectors ex-ante because of regulatory uncertainty, the long development process to a market ready product and the difficulty to understand the technology. The more thorough due diligence process focusses on financial, market and technology criteria. Management team capabilities are more important for later stage investors, whereas early stage investors expect to have an impact on the future recruiting of professional managers. Despite the higher risk of biotech investments, we find no evidence that VCs require higher hurdle rates or more complete contracts for these investments, compared to investments in other technology-based companies. The most important reason for not reaching an investment agreement is disagreement over valuation, due to large differences in risk perception between entrepeneurs and venture capitalists and the lack of a standard valuation tool for biotech projects.
    Keywords: venture capital; selection process; biotechnology
    Date: 2005–11–05
  15. By: Jyrki Ali-Yrkkö (ETLA, the Research Institute of the Finnish Economy)
    Abstract: This study analyses how public R&D financing impacts companies. Our main goal is to study whether public and private R&D financing are substitutes or complements, and whether this impact differs between financially constrained and unconstrained companies. Our company-level panel data cover the period from 1996 to 2002. The statistical method employed in the research takes into account the possibility that receiving public support may be an endogenous factor. Our results suggest that public R&D financing does not crowd out privately financed R&D. Instead, receiving a positive decision to obtain public R&D funds increases privately financed R&D. Furthermore, our results suggest that this additionality effect is bigger in large firms than in small firms.
    Keywords: Public finance, R&D, substitute, financial constraint
    Date: 2005–02
  16. By: Lucas Bretschger (Institute of Economic Research (WIF), Swiss Federal Institute of Technology Zurich (ETH))
    Abstract: The paper aims to substantiate the importance of endogenous innovations when evaluating the compatibility of natural resource use and economic development. It explains that technological change has the potential to compensate for natural resource scarcity, diminishing returns to capital, poor input substitution, and material balance restrictions, but is limited by various restrictions like fading returns to innovative investments and rising research costs. It also shows how innovative activities are fostered by accurate price signals and research-favouring sectoral change. The simultaneous effects of increasing technical knowledge, decreasing resource inputs, and increasing world population largely determine the chances of long-run sustainable development. Consequently, future research has to be directed at a more thorough understanding of the mechanisms driving innovations in the presence of natural resource scarcity.
    Keywords: endogenous technological change, environment, natural resources, sustainability
    JEL: Q20 Q30 O41 O33
    Date: 2004–06
  17. By: Roberto M Samaniego
    Abstract: I argue that an aggregate model in which the generation of knowledge is an important factor of economic growth can be reconciled with several otherwise puzzling empirical findings on this link if knowledge affects output through investment-specific technical change. In the model, there may be a weak empirical relationship between measures of knowledge and total factor productivity even when the generation of knowledge is the predominant channel through which economic growth takes place. The results also suggest that intertemporal spillovers in the production of knowledge are likely to be small
    Keywords: ideas' production, quasi-endogenous growth, patent stock, investment specific technical change, price of capital.
    JEL: E30 O30 O40
    Date: 2005–11–11
  18. By: Weijters, B.; Schillewaert, N.; Rangarajan,D.; Falk, T.
    Abstract: The last decade has seen an increased focus by retailers on using new technologies to deliver their services. The introduction of self-service technologies (SSTs) opens up for retailers the potential of improving productivity and service quality while cutting costs. However previous forays by retailers to get their customers to try these self-service technologies have not been proven to be quite successful. Previous empirical research on the usage of technology based self-services has mainly focused on antecedents of attitude towards and corresponding behavioral intentions to use. However, little empirical research has linked these variables to actual behavior in a real life setting. To address these issues, we collected a combination of survey and observational data using self-scanning lanes as objects of investigation. We identify ease of use, usefulness, fun, and reliability as drivers of attitude towards the SST, which in turn significantly predict actual usage of the SST. We also extend previous research by focusing on the moderating effects of age, education and gender as key demographic variables. Finally, we contribute to the literature by studying the consequences of SST use from the customers’ point of view.
    Keywords: self-service technology, retailing, consumer attitudes and behavior
    Date: 2005–11–05
  19. By: Simone Valente (Institute of Economic Research, ETH Zurich)
    Abstract: Conflicts between optimality and sustainability are typical in the literature on sustainable development. Using the 'capital-resource' growth model, Pezzey and Withagen (1998) have proved that if natural resources are exhaustible, the time-path of consumption is single-peaked, declining from some point in time onwards. This paper extends the model to include technical progress, resource renewability, extraction costs and population growth. The main result is that, for any constant returns to scale technology, optimal paths can be sustainable only if the social discount rate does not exceed the sum of the rates of resource regeneration and augmentation. The development of resource-saving techniques is crucial for sustaining consumption per capita in the long run, whereas capital depreciation and extraction costs are neutral with respect to this sustainability condition.
    Keywords: Optimal Growth, Renewable Resources, Sustainable Development, Technological Progress
    JEL: Q20 O11 O30
    Date: 2004–04–08

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