nep-ino New Economics Papers
on Innovation
Issue of 2009‒04‒05
twenty-two papers chosen by
Steffen Lippert
Massey University Department of Commerce

  1. Of Mice and Academics: Examining the Effect of Openness on Innovation By Fiona Murray; Philippe Aghion; Mathias Dewatripont; Julian Kolev; Scott Stern
  2. Innovation in New Zealand: Issues of Firm Size, Local Market Size and Economic Geography By Philip McCann; Les Oxley; Hong Shangqin
  3. Languages, Fees and the International Scope of Patenting By Harhoff, Dietmar; Hoisl, Karin; van Pottelsberghe de la Potterie, Bruno
  4. Incentives to Innovate and Social Harm: Laissez-Faire, Authorization or Penalties? By Giovanni Immordino; Marco Pagano; Michele Polo
  5. The Effects of Fiscal Incentives for R & D in Spain By Beatriz Corchuelo; Ester Martinez-Ros
  6. Returns on R&D investment: A comprehensive survey on the magnitude and evaluation methodologies By Andreia Cardoso; Aurora A.C. Teixeira
  7. Working with Distant Researchers – distance and content in university-industry interaction By Broström, Anders
  8. Geographic proximity and firm-university innovation linkages: evidence from Great Britain By Laura Abramovsky; Helen Simpson
  9. Open Innovation in firms located in an intermediate technology developed country By Mariana Lopes; Aurora A.C. Teixeira
  10. The Effect of Credit Rationing on the Shape of the Competition-Innovation Relationship By Jan Bena
  11. How does Tacit Knowledge Transfer Influence Innovation Speed? The Case of Science Based Entrepreneurial Firms By M. KNOCKAERT; D. UCBASARAN; M. WRIGHT; B. CLARYSSE
  12. Patents versus Subsidies – A Laboratory Experiment By Donja Darai; Jens Grosser; Nadja Trhal
  13. Key Characteristics of the Small Innovative Firm By Andersson, Martin; Lööf, Hans
  14. Finance and R&D Investments – is there a debt overhang effect on R&D investments? By Martinsson, Gustav
  15. Knowledge and innovation for agricultural development: By Asenso-Okyere, Kwadwo; Davis, Kristin
  16. Industry-university S&T transfers: what can we learn from Belgian CIS-2 data? By CAPRON, Henri; CINCERA, Michèle
  17. Understanding innovation system build up: The rise and fall of the Dutch PV Innovation System By Simona O. Negro; Veronique Vasseur; Wilfried van Sark; Marko Hekkert
  18. "Pareto Optimal Pro-cyclical Research and Development" By R. Anton Braun; Tomoyuki Nakajima
  19. Determinants of the international influence of a R&D organisation: a bibliometric approach By Aurora A.C. Teixeira; José Sequeira
  20. The location of innovative activity in Europe By Laura Abramovsky; Rachel Griffith; Gareth Macartney; Helen Miller
  21. Assessing the influence of R&D institutions by mapping international scientific networks: the case of INESC Porto By José Sequeira; Aurora A.C. Teixeira
  22. General Purpose Technologies and their Implications for Schumpeterian Growth and Trade By Petsas, Iordanis

  1. By: Fiona Murray; Philippe Aghion; Mathias Dewatripont; Julian Kolev; Scott Stern
    Abstract: Scientific freedom and openness are hallmarks of academia: relative to their counterparts in industry, academics maintain discretion over their research agenda and allow others to build on their discoveries. This paper examines the relationship between openness and freedom, building on recent models emphasizing that, from an economic perspective, freedom is the granting of control rights to researchers. Within this framework, openness of upstream research does not simply encourage higher levels of downstream exploitation. It also raises the incentives for additional upstream research by encouraging the establishment of entirely new research directions. In other words, within academia, restrictions on scientific openness (such as those created by formal intellectual property (IP)) may limit the diversity and experimentation of basic research itself. We test this hypothesis by examining a "natural experiment" in openness within the academic community: NIH agreements during the late 1990s that circumscribed IP restrictions for academics regarding certain genetically engineered mice. Using a sample of engineered mice that are linked to specific scientific papers (some affected by the NIH agreements and some not), we implement a differences-in-differences estimator to evaluate how the level and type of follow-on research using these mice changes after the NIH-induced increase in openness. We find a significant increase in the level of follow-on research. Moreover, this increase is driven by a substantial increase in the rate of exploration of more diverse research paths. Overall, our findings highlight a neglected cost of IP: reductions in the diversity of experimentation that follows from a single idea.
    JEL: J30
    Date: 2009–03
  2. By: Philip McCann; Les Oxley (University of Canterbury); Hong Shangqin
    Abstract: In this paper we report empirical evidence from a mixed methods approach to investigating the drivers of innovation in New Zealand. The evidence comes from a primary questionnaire survey we conducted across seventy-five local firms plus fifteen face-to-face case study interviews. Our survey response data is analysed using four different types of probability models and the various models are all found to be largely consistent with each other. The insights from these estimation methods are then bolstered by detailed follow-up case studies of individual firms in different industries and product groups regarding their innovation and competition experiences. Our results from both forms of evidence-gathering suggest that in a small and isolated local market such as New Zealand, smallness in terms of firm size may not be an advantage for innovation. The reason appears to be that the notion of ‘small’ itself may have an absolute minimum threshold, below which translating entrepreneurship into innovation becomes problematic. As such, applying theories of local economic development to local economies which exhibit similar features to New Zealand may require us to adjust our thinking in order to take account of different absolute scale effects in different types of economies.
    Keywords: Innovation; New Zealand; SME; Economic Geography
    JEL: O31 O33 O38
    Date: 2009–04–01
  3. By: Harhoff, Dietmar; Hoisl, Karin; van Pottelsberghe de la Potterie, Bruno
    Abstract: This paper analyzes firms’ choices regarding the geographic scope of patent protection within the European patent system. We develop an econometric model at the patent level to quantify the impact of office fees and translation costs on firms’ decision to validate a patent in a particular country once it has been granted by the EPO. These costs have been disregarded in previous studies. The results suggest that both translation costs and fees for validation and renewals have a strong influence on the behavior of applicants. The estimates are then employed to simulate the impact of the London Protocol, a recent policy reform which reduces translation requirements in the European patent system. National validations of patents granted by the EPO are estimated to increase by 29%.
    Keywords: patent fees; patent validation; patents; renewal fees; translation costs
    JEL: O30 O31 O38 O57
    Date: 2009–03
  4. By: Giovanni Immordino (Università di Salerno and CSEF); Marco Pagano (Università di Napoli Federico II, CSEF, EIEF and CEPR); Michele Polo (Università Bocconi di Milano, IGIER and CSEF)
    Abstract: We analyze optimal policy design when firms' research activity may lead to socially harmful innovations. Public intervention, affecting the expected profitability of innovation, may both thwart the incentives to undertake research (average deterrence) and guide the use to which innovation is put (marginal deterrence). We show that public intervention should become increasingly stringent as the probability of social harm increases, switching first from laissez-faire to a penalty regime, then to a lenient authorization regime, and finally to a strict one. In contrast, absent innovative activity, regulation should rely only on authorizations, and laissez-faire is never optimal. Therefore, in innovative industries regulation should be softer.
    Keywords: innovation, liability for harm, safety regulation, authorization
    JEL: D73 K21 K42 L51
    Date: 2009–03–25
  5. By: Beatriz Corchuelo; Ester Martinez-Ros
    Abstract: This paper explores the effect of fiscal incentives for R&D on innovation. Spain is considered one of the most generous countries in the OECD in fiscal treatment of R&D, yet our data reveal that tax incentives are little known and, especially, seldom used by firms. Restricting our empirical analysis to those firms that do report knowing about such incentives, we investigate the average effect of tax incentives on innovation, using both nonparametric methods (matching estimators) and parametric methods (Heckman’s two-step selection model with instrumental variables). First, we find that large firms, especially those that implement innovations, are more likely to use the tax incentives, while small and medium enterprises (SMEs) encounter some obstacles to using them. Secondly, the average effect of the policy is positive, but significant only in large firms. Our main conclusion is that tax incentives increase innovative activities by large and high-tech sector firms, but may be used only randomly by SMEs
    Keywords: R&D fiscal incentives, Matching methods
    JEL: O31 H25 H32
    Date: 2009–03
  6. By: Andreia Cardoso (UITT; INESC Porto); Aurora A.C. Teixeira (INESC Porto, CEFUP, Faculdade de Economia, Universidade do Porto)
    Abstract: As technology and innovation seem to be contingent upon each other a great deal of attention has been given to the importance of assessing the contribution of R&D investment to firm and industry performance and, ultimately, to the economic performance of countries and regions. In industrialised societies not only private but also public agents have allocated increasing amounts of their resources to R&D activities, often considered the key path to innovativeness. At the same time, due to advances in empirical research, increasingly more focused on the micro (firms) rather than on the macro (country) level, old myths about the relationship between R&D, innovation and success began to fall down. Firstly, the idea that innovation is much broader than R&D has gained large support and has made it possible to identify other sources of innovation, beyond excellence in R&D, which had been largely hidden or neglected. As result, perceptions about small firms - or the so-called low-tech industries, which either do not carry out any significant R&D activities or are likely to perform them outside formal classifications - started to change. Secondly, the idea that more R&D investment is always automatically bond to success - whatever criteria one may choose to define success – has become nothing more than a utopia. In this paper we carry out an analysis of the literature on the magnitude and evaluation of R&D, and, possibly, of innovation. We identify the methodologies used and analyse to what extent the magnitude of (eventual) R&D returns is dependent on the methodology pursued and the level of analysis - firms (micro), industry (meso), and regions/countries (macro) - considered. We conclude that methodological approaches and levels of analysis determine, to a certain extent, the type of results obtained and, thus, variances between them.
    Keywords: Innovations and R&D indicators; Methodologies; Macro, meso and micro levels; R&D payoff
    Date: 2009–03
  7. By: Broström, Anders (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: This paper studies the role of geographic proximity for interaction on R&D, by exploring the special case of university-industry contacts. While numerous studies find that geographic proximity facilitates spillover effects between university and industry by utilising evidence from e.g. patenting and publishing activities, the geographical dimension is largely understudied in studies that report evidence from direct interaction. To explore when geographical proximity matters for university-industry interaction, a series of interviews with R&D managers in Swedish engineering firms is conducted. These interviews suggest that linkages in geographical proximity are more likely to generate impulses to innovation and create significant learning effects at the firm. Similarly, geographic proximate interaction is more likely to successfully contribute to R&D projects with short time to market. For long-term R&D projects, geographic proximity is generally seen as a less critical factor. A survey to 425 R&D managers in Swedish engineering firms provides evidence that supports these hypotheses.
    Keywords: R&D collaboration; innovation collaboration; university; technology transfer
    JEL: L21 L23 O32
    Date: 2009–03–25
  8. By: Laura Abramovsky (Institute for Fiscal Studies); Helen Simpson (Institute for Fiscal Studies and CMPO, Bristol)
    Abstract: <p><p>We investigate evidence for spatially mediated knowledge transfer from university research. We examine whether firms locate their R&D labs near universities, and whether those that do are more likely to co-operate with, or source knowledge from universities. We find that pharmaceutical firms locate R&D near to frontier chemistry research departments, consistent with accessing localised knowledge spillovers, but also linked to the presence of science parks. In industries such as chemicals and vehicles there is less evidence of immediate co-location, but those innovative firms that do locate near to relevant research departments are more likely to engage with universities.</p></p>
    Keywords: Innovation, geography, spillovers, public research
    JEL: O3 R11 R13 I23
    Date: 2009–01
  9. By: Mariana Lopes (Faculdade de Economia, Universidade do Porto); Aurora A.C. Teixeira (INESC Porto; CEFUP, Faculdade de Economia, Universidade do Porto)
    Abstract: Open Innovation is a flow of inputs and outputs of knowledge and technology which favours, at the firm level, the acceleration of the innovation process, as well as the establishment and penetration of firms in new markets. This type of innovation incorporates technological innovation from internal and external sources, as well as different ways to access markets. The empirical studies in the area reveal that there is a significant bias in favour of countries of technological frontier, such as the United States, Finland, the Netherlands, Germany or Sweden. The present study aims at covering this gap in literature by examining firms in a country of intermediate technology development – Portugal. Based on 70 innovative firms located in Portugal we found that open innovation is only partially diffused throughout these firms. In addition, open innovation is more widespread in terms of external absorption of knowledge/ technology rather than in terms of knowledge/technology transfer. This result may indicate lack of awareness about the economic potential of making available to third parties the technologies internally created. This may require a different approach to organization/management of R&D, in particular, and of innovation, in general.
    Keywords: Open Innovation; Intermediate technology development; Portugal.
    JEL: O32
    Date: 2009–03
  10. By: Jan Bena
    Abstract: Using a dynamic model of a step-by-step innovation race between financially constrained firms, I study how financial constraints affect innovation activity. The novel theoretical results derive from an analysis of the interaction between the incentive effect of competition on innovation and the effect competition has on the degree of credit rationing. I find that the negative effect of financial constraints on firm- and aggregate-level R&D investment is most pronounced at both high and low levels of competition. These predictions are supported by empirical evidence: The competition-innovation relationship has an inverted-U shape in less financially developed systems relative to the benchmark pattern observed in countries with highly developed financial systems. Innovation-enhancing policies implemented through competition reforms ought to be complemented by promoting financial development.
    Date: 2009–03
    Abstract: The increased pressure put on public research institutes to commercialize their research results has given rise to an increased academic interest in technology transfer in general and science based entrepreneurial firms specifically. By building on innovation speed and knowledge literatures, this paper aims to improve understanding of how tacit knowledge can be effectively transferred from the research institute to the science based entrepreneurial firm. More specifically, we assess under which conditions tacit knowledge contributes to the generation of innovation speed, which is a crucial success parameter for technology based ventures. Using an inductive case study approach, we show that tacit knowledge can only be transferred effectively when a substantial part of the original research team joins the new venture as founders. Our analysis also reveals that the mere transfer of tacit knowledge is insufficient to ensure the successful commercialization of technology. Commercial expertise is also required on the condition that the cognitive distance between the scientific researchers and the person responsible for market interaction is not too large. Our findings have implications for science based entrepreneurs, technology transfer officers, venture capitalists, policy makers and the academic community.
    Keywords: science based entrepreneurial firms; tacit knowledge; technology transfer; innovation speed; cognitive distance
    Date: 2009–01
  12. By: Donja Darai (Socioeconomic Institute, University of Zurich); Jens Grosser (Departments of Political Science and Economics, Florida State University); Nadja Trhal (Economics Department, University of Cologne)
    Abstract: This paper studies the effects of patents and subsidies on R&D investment decisions. The theoretical framework is a two-stage game consisting of an investment and a market stage. In equilibrium, both patents and subsidies induce the same amount of R&D investment, which is higher than the investment without governmental incentives. In the first stage, the firms can invest in a stochastic R&D project which might lead to a reduction of the marginal production costs and in the second stage, the firms face price competition. Both stages of the game are implemented in a laboratory experiment and the obtained results support the theoretical predictions. Patents and subsidies increase investment in R&D and the observed amounts of investment in the patent and subsidy treatment do not differ significantly across both instruments. However, we observe overinvestment in all three treatments. Observed prices in the market stage converge to equilibrium price levels.
    Keywords: R&D investment, oligopoly, patents, subsidies, experiment
    JEL: C90 L13 O31
    Date: 2009–03
  13. By: Andersson, Martin (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Lööf, Hans (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: Despite broad agreement on the strategic role of SMEs (Small and Medium Sized Enterprises) in industrial renewal processes, the lack of systematized and comprehensive information on the nature and level of small innovative firms is striking. This bias is partly explained by an empirical shadow created by the limited availability of good, detailed data for comparable firm-level analyses. Based on extensive matched databases, the purpose of this paper is to provide new insights into the roles of micro and small innovative firms in research-based as well as tradition-based manufacture. The data consists of close to 160 000 observations of manufacturing firms in Sweden over the period 2000-2006, including information on innovation activities captured by patent applications, firm characteristics, international trade and the regional milieu.
    Keywords: Innovation; Innovative Firms; Entrepreneurship; Small firms; Intellectual Property Rights; Technology Transfer; Location
    JEL: F43 L26 M13 O31 O34
    Date: 2009–03–25
  14. By: Martinsson, Gustav (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: The motivation of this paper is the rather naive approach to debt as a financing source of R&D investment in the empirical investment literature. I focus on long-term relational debt based on its appealing contractual properties and discover a debt overhang effect for the relationship between additional long-term debt and R&D investment. I augment an error correction accelerator-profit specification to include changes in long-term debt as a transitory determinant of R&D investment as has been done with internal finance previously. Firms with previous period debt levels around 0.60 display a positive relationship between additional long-term debt and R&D investment.
    Keywords: Econometrics; Financial Economics; Financial Markets; R&D; Financing Constraints
    JEL: C01 O16 O30
    Date: 2009–03–25
  15. By: Asenso-Okyere, Kwadwo; Davis, Kristin
    Abstract: "Every day, millions of rural people who depend on agriculture confront technical, economic, social, cultural, and traditional obstacles to improving their livelihoods. To cope with these obstacles, the rural poor draw on indigenous knowledge and innovate through local experimentation and adaptation. Indigenous knowledge alone, however, is not enough to deal with the complex problems facing the agricultural sector. Emerging issues such as high food prices, climate change, and demands for biofuels require complementary knowledge from formal agricultural research and development (R&D) and support from policies and other institutions. Formal and informal knowledge and innovation must therefore be linked to accelerate sustainable agricultural development. Knowledge, defined as organized or processed information or data, is fundamental in the pursuit of innovation. For innovation to occur, knowledge must be created, accumulated, shared, and used. Innovations—new ideas, practices, or products that are successfully introduced into economic or social processes— can involve technologies, organizations, institutions, or policies. Innovation means putting ideas, knowledge, and technology to work in a manner that brings about a significant improvement in performance or product quality." from Author's text
    Keywords: Agricultural research, Agricultural development, Innovation, Knowledge, technology, Institutions, Policies, Organizations,
    Date: 2009
  16. By: CAPRON, Henri; CINCERA, Michèle
    Keywords: industiy-university collaborations; innovation; Belgian CIS-2
  17. By: Simona O. Negro; Veronique Vasseur; Wilfried van Sark; Marko Hekkert
    Abstract: Renewable energy technologies have a hard time to break through in the existing energy regime. In this paper we focus on analysing the mechanisms behind this problematic technology diffusion. We take the theoretical perspective of innovation system dynamics and apply this to photovoltaic solar energy technology (PV) in the Netherlands. The reason for this is that there is a long history of policy efforts in The Netherlands to stimulate PV but results in terms of diffusion of PV panels is disappointingly low, which clearly constitutes a case of slow diffusion. The history of the development of the PV innovation system is analysed in terms of seven key processes that are essential for the build up of innovation systems. We show that the processes related to knowledge development are very stable but that large fluctuations are present in the processes related to ‘guidance of the search’ and ‘market formation’. Surprisingly, entrepreneurial activities are not too much affected by fluctuating market formation activities. We relate this to market formation in neighbouring countries and discuss the theoretical implications for the technological innovation system framework.
    Keywords: Photovoltaic, Innovation system dynamics, Motors of Change
    Date: 2009–03
  18. By: R. Anton Braun (Faculty of Economics, University of Tokyo); Tomoyuki Nakajima (Institute of Economic Research, Kyoto University)
    Abstract: We develop a perfectly competitive endogenous growth model in which R&D is the engine of growth. Our model generates pro-cyclical R&D investment and labor input as a pareto optimal response to technology shocks to the consumption and equipment good sectors. The model also reproduces a variety of facts from the U.S. economy. Growth in R&D capital accounts for 75 percent of the growth rate of GNP and the decline in the relative price of equipment investment. Investment in each sector is pro-cyclical. Our results suggest that equipment shocks may be less important than the previous literature has found. After accounting for the endogenous response of R&D, equipment sector shocks only account for a small fraction of the variance in the growth rate of GNP.
    Date: 2009–03
  19. By: Aurora A.C. Teixeira (CEF.UP, Faculdade de Economia, Universidade do Porto; INESC Porto); José Sequeira (Porto Vivo - Sociedade de Reabilitação Urbana (SRU); INESC Porto)
    Abstract: Traditionally, studies on the influence and impact of knowledge-producing organisations have been addressed by means of strict economic analysis, stressing their economic impact to a local, regional or national extent. In the present study, an alternative methodology is put forward in order to evaluate the international scientific impact and influence of a knowledge-producing and -diffusing institution. We introduce a new methodology, based on scientometric and bibliometric tools, which complement traditional assessments by considering the influence of a R&D institution when looking at the scientific production undertaken and the recognition of its relevance by its international peer community. Focusing on the most prolific scientific areas of INESC Porto, and resorting to published scientific work recorded in the Science Citation Index (SCI), we show that INESC Porto has enlarged its international scientific network. The logit estimations demonstrate that the wide geographical influence of INESC Porto scientific research is a result not of its international positioning in terms of co-authorships, but rather a result of the quality of its scientific output.
    Keywords: Impact and influence assessment methods; R&D Institutions; Bibliometrics, Scientometrics; knowledge network; INESC Porto
    JEL: O39 C81 L31
    Date: 2009–03
  20. By: Laura Abramovsky (Institute for Fiscal Studies); Rachel Griffith (Institute for Fiscal Studies and University College London); Gareth Macartney (Institute for Fiscal Studies and University College London); Helen Miller (Institute for Fiscal Studies)
    Abstract: <p>In this paper we use new data to describe how firms from 15 European countries organise their innovative activities. The data matches firm level accounting data with information on the patents that those firms and their subsidiaries have applied for at the European Patents Office. We describe the data in detail. </p>
    Keywords: International investment and multinational firms; technological change and research and development; fiscal policies and behaviour of economic agents
    JEL: F21 F23 O3 H3
    Date: 2008–11
  21. By: José Sequeira (Porto Vivo - Sociedade de Reabilitação Urbana (SRU); INESC Porto); Aurora A.C. Teixeira (CEF.UP, Faculdade de Economia, Universidade do Porto; INESC Porto)
    Abstract: Although scientometric and bibliometric studies embrace a much wider perspective of the linkages/networks of R&D institutions than standard economic studies, to the best of our knowledge, these studies have not yet made use of scientometric tools to analyse the influence and impact of R&D institutions. Moreover, the international perspective has so far been neglected both in standard and bibliometric studies. Based on networks of 1239 foreign co-authorships and 13035 foreign citation linkages, we demonstrate that INESC Porto international influence has considerably expanded since 2003, a year that coincided with the implementation of an internal policy of granting monetary prizes to publications in scientific international journals. In terms of co-authorship, the network of INESC Porto more than duplicated (13 countries in the initial period to 27 in 2004-07). In terms of citations, INESC Porto’s network encompassed almost 40 countries during the whole period (1996-2007). Its more prolific units (optoelectronics, energy and multimedia) presented a rather distinct pattern both in terms of size and evolution of the corresponding network boundaries. The network size of foreign co-authorships was not much different between the three units by the beginning of the 2000s (around 10 countries) but it evolved quite distinctly. The most remarkable pattern was registered by the multimedia (UTM) unit, whose network size rose exponentially to 21 countries in 2004-07. This contrasted with the decline (down to 8 countries) of the energy (USE) unit. The citation network of the optoelectronic unit (UOSE) was by far the largest, until 2003, involving 34 distinct countries, which contrasted with the size of USE (12 countries) and UTM (1 country). But again, after 2003, the size of the citation network of USE and UTM converged spectacularly to that of UOSE’s, reaching in the last period 21 and 16, respectively. The influence of INESC Porto reaches all five continents, especially when we consider citation networks. Indeed, excluding the citations from authors affiliated in Portuguese institutions, those that most cite INESC Porto’s (and UOSE’s) works are affiliated in institutions located in China, the UK and the US. The scientific works produced by USE influences mostly authors affiliated in institutions located in India, China and Spain, whereas for UTM the corresponding countries are the US, Germany and Italy. We infer from the evidence analysed that not only did the boundaries of INESC Porto’s scientific network substantially enlarge in the period of analysis (1996-2007) but its ‘quality’ also evidenced a positive evolution, with authors affiliated in institutions located in the scientific frontier countries citing works of INESC Porto (and its units). Length: 64 pages
    Keywords: Bibliometrics, Knowledge networks; R&D Institutions
    JEL: O39 C81 L31
    Date: 2009–03
  22. By: Petsas, Iordanis
    Abstract: General purpose technologies (GPTs) are drastic innovations, such as electrification, the transistor, and the Internet, that are characterized by the pervasiveness in use, innovational complementarities, and technological dynamism. The model develops a two-country (Home and Foreign) dynamic general equilibrium framework and incorporates general purpose technology diffusion within Home that exhibits endogenous Schumpeterian growth. The model studies the effects of the diffusion of the general purpose technology on the pattern of trade and Home’s relative wage. Based on specific assumptions, the adoption of a GPT by a particular industry generates an increase in the productivity of manufacturing workers at Home. By assumption, the diffusion of a GPT across industries is governed by S-curve dynamics, and the diffusion of the GPT within an industry at Home is considered exogenous. The model analyzes the long-run and transitional dynamic effects of a new GPT on trade patterns, product cycles and (transitional) divergence in per-capita growth rates between the two countries.
    Keywords: General purpose technologies, Schumpeterian growth, comparative advantage, scale effects, R&D races.
    JEL: L2 F10 O3 O4 L1
    Date: 2009–03–15

This nep-ino issue is ©2009 by Steffen Lippert. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.