nep-ino New Economics Papers
on Innovation
Issue of 2010‒02‒05
ten papers chosen by
Steffen Lippert
Massey University Department of Commerce

  1. Parallel Imports and Innovation in an Emerging Economy By Andrea Mantovani; Alireza Naghavi
  2. Dominance and Innovation By Velu, C.; Iyer, S.
  3. Patent thickets, licensing and innovative performance By Cockburn, Iain M.; MacGarvie, Megan J.; Müller, Elisabeth
  4. Patents of Introduction and the Spanish Innovation System By Saiz, J. Patricio
  5. Enterprise systems and innovations By Engelstätter, Benjamin
  6. Business Taxation, Corporate Finance and Economic Performance By Christian Keuschnigg; Evelyn Ribi
  7. Innovative capability and financing constraints for innovation more money, more innovation? By Hottenrott, Hanna; Peters, Bettina
  8. Volumes of Evidence - Examining Technical Change Last Century Through a New Lens By Michelle Alexopoulos; Jon Cohen
  9. Does Trade Stimulate Innovation?: Evidence from Firm-Product Data By Ana Margarida Fernandes; Caroline Paunov
  10. Knowledge diffusion and knowledge transfer: two sides of the medal By Klarl, Torben

  1. By: Andrea Mantovani; Alireza Naghavi
    Abstract: This paper studies the consequences of parallel import (PI) on process innovation of firms heterogeneous in their production technology. In an international setting where foreign markets differ with respect to their intellectual property rights regime, a move by a technologically inferior firm to exploit a new unregulated market can result in imitation and PI. The impact of PI on innovation is determined by the degree of heterogeneity between firms and trade costs. Increasing trade costs shifts from the market share losses brought by PI from the more to the less productive firm. This induces the former to invest more in R&D. At this point, sales in the foreign market become a determinant of the R&D decision by the technologically inferior firm. For low levels of firm heterogeneity, PI increases output by this ?rm targeted for the unregulated market, hence increases its Innovation efforts. A tariff policy accompanied by opening borders to PI only increases welfare when the technological gap between the two firms are suffciently large.
    Keywords: Intellectual property rights; Parallel imports; Innovation; Trade costs; Welfare
    JEL: F12 F13 L11
    Date: 2010–01
  2. By: Velu, C.; Iyer, S.
    Abstract: Do dominant or less dominant firms innovate more? Theoretically it has been shown that within an asymmetric mixed strategy game of a patent race, the less dominant firm invests more than the dominant firm. But the empirical data on patent races is divided. In this paper, we argue that the decisions that concern strategic choice in innovation may be influenced by expected relative returns. Our approach, which we call the returns-based beliefs approach, is based upon subjective probabilities. It combines a decision analytic solution concept and Luce’s (1959) probabilistic choice model. In particular, we show how the use of the returns-based beliefs approach provides support for the thesis that dominant firms invest more in R&D within an asymmetric mixed strategy game. Consequently, we argue that the returns-based beliefs approach is more in line with recent empirical studies of innovation. We also provide empirical evidence using UK R&D data across a range of industries from 2001-2006 that shows that firms’ spending on R&D is related more to their own profitability than that of their competitors, which is consistent with the returns-based beliefs approach. We discuss the managerial implications of our theoretical approach and the empirical findings.
    Date: 2010–01–27
  3. By: Cockburn, Iain M.; MacGarvie, Megan J.; Müller, Elisabeth
    Abstract: We examine the relationship between fragmented intellectual property (IP) rights and the innovative performance of firms, taking into consideration the role played by in-licensing of IP. We find that firms facing more fragmented IP landscapes have a higher probability of in-licensing. For firms with small patent portfolios we also find a positive association between fragmentation and licensing costs as a share of sales. We observe a negative relationship between IP fragmentation and innovative performance, but only for firms that engage in in-licensing. In contrast, greater IP fragmentation is associated with higher innovative performance for firms that do not in-license. Furthermore, the effects of fragmentation on innovation also appear to depend on the size of a firm’s patent portfolio. These results suggest that the effects of fragmentation of upstream IP rights are not uniform, and instead vary according to the characteristics of the downstream firm. --
    Keywords: patent thickets,licensing,innovative performance
    JEL: O34 O31
    Date: 2009
  4. By: Saiz, J. Patricio (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid)
    Abstract: From a long-term perspective, technological innovation could have come from local or domestic inventive and research activity, or from the transfer of foreign technology. In reality either option produces similar effects and often it was a combination of both which drove the historical acceleration of the rhythm of innovation and expansion of industry. This was fundamental for Great Britain and its early followers, and even more so for the latecomers and the underdeveloped countries. Spain, for example, suffered from scientific, technological and industrial backwardness which impeded the implementation of a national research and development infrastructure capable of generating competitive inventive activity. However, the national innovation system was designed, from the 18th century onwards, to favour the transfer of technology and human capital from abroad and thus establish the basis of modern economic growth and the process of industrialization. In this paper we will reflect on the design of the Spanish Innovation System, especially in one of its institutional aspects (the patent system), in order to understand the real role and function of a curios legal process the “patent of introduction”, which in practice promoted and permitted anyone to protect foreign third-person technologies in order to implement them locally, providing they were not already established. Although this legal practice represents a very clear declaration of intentions concerning the innovation policy and despite its existence in other patent systems in lagging countries, economic and technology historians have paid little or no attention to the subject. Therefore it is unclear how patents of introduction functioned and what consequences they had on the innovation and industrialization processes, especially in underdeveloped countries such as Spain, which, incredibly, maintained this practice until joining the European Union in 1986. We will attempt to shed light on how patents of introduction were established and how they evolved, the role they played in the promotion of innovation, who used them and how, and the real impact they had. The conclusions point out that, as with protectionism as a commercial policy, forcing national processes of innovation that take advantage of foreign inventions with or without respecting the original inventors rights –as generally occurs with the transfer of technology from abroad- could have positive consequences on the industrialization processes as well as helping lagging countries such as Spain to catch up with modern societies.
    Keywords: Patents of introduction; National innovation system; Spain; Technology transfer.
    JEL: N43 N44 N73 N74 O31 O34 O38
    Date: 2009–08
  5. By: Engelstätter, Benjamin
    Abstract: This paper analyzes the relationship between the three main enterprise systems (Enterprise Resource Planning (ERP), Supply Chain Management (SCM), Customer Relationship Management (CRM)) and firms' innovational performance. It studies whether the enterprise systems have impacts on process as well as product innovations. Using German firm-level data, the results show that ERP and SCM systems foster the firms' likelihood to generate process innovations. In addition, ERP systems also show a positive impact on process innovation intensity. These results do not only emerge for the short-run of two years or less but remain also stable in the long-run of two to four years. Concerning product innovational performance only, CRM systems increase the firms' likelihood to acquire product innovations, although the impact only emerges for the short-run and vanishes if the long-run perspective is taken into account. --
    Keywords: Innovation,Product Innovation,Process Innovation,Enterprise Systems,Selectivity,Enterprise Resource Planning,Supply Chain Management,Customer Relationship Management
    JEL: L10 M20 O31
    Date: 2009
  6. By: Christian Keuschnigg; Evelyn Ribi
    Abstract: This survey of recent research in corporate finance discusses how business taxes, subsidies as well as a country's institutional development affect several important decision margins of heterogeneous firms. We argue that innovative firms, as a result of agency problems between insiders and outside investors, are most frequently finance constrained. We discuss how profit taxes reduce investment of constrained firms by their effect on cash-flow, and of unconstrained firms by their effect on the user cost of capital. Moreover, tax reform as well as tax financed R&D subsidies can enhance aggregate investment, innovation and efficiency by implicitly redistributing profits towards constrained firms where capital earns the highest return. We argue that the corporate legal form improves firms' access to external funds. We then explain the firms' choice between venture capital and bank financing and discuss how business taxation can affect venture capital financing on both the extensive and intensive margins. Finally, we review theory and evidence on how corporate finance may shape a country's comparative advantage in innovative industries as well as aggregate labor market performance when part of firms are finance constrained.
    Keywords: Financing constraints, innovation, business taxation, subsidies, entrepreneurial choice
    JEL: G38 H24 H25
    Date: 2010–01
  7. By: Hottenrott, Hanna; Peters, Bettina
    Abstract: This study presents a novel empirical approach to identify financing constraints for innovation based on the idea of an ideal test as suggested by Hall (2008). Firms were offered a hypothetical payment and were asked to choose between alternatives of use. If they choose additional innovation projects they must have had some unexploited investment opportunities that were not profitable using more costly external finance. That is, these firms have been financially constrained. We attribute constraints for innovation not only to lacking financing, but also to firms' innovative capability. Econometric results show that financial constraints do not depend on the availability of internal funds perse, but that they are driven by innovative capability. We find firms with high innovative capability but low financial resources to be most likely subject to financing constraints. Yet, we also observe constraints for financially sound firms that may have to put ideas on the shelf. --
    Keywords: Innovation,financing constraints,innovative capability,multivariate probit models
    JEL: O31 O32 C35
    Date: 2009
  8. By: Michelle Alexopoulos; Jon Cohen
    Abstract: Although technical change is central in much of modern economics, traditional measures of it are, for a number of reasons, flawed. We discuss in this paper new indicators based on data drawn from the MARC records of the Library of Congress on the number of new technology titles in various fields published in the United States over the course of the last century. These indicators, we argue, overcome many of the shortcomings associated with patents, research and development expenditures, innovation counts, and productivity figures. We find, among other things, the following: the pattern and nature of technical change described by our indicators is, on the whole, consistent with that of other measures; they represent innovation not diffusion; a strong causal relationship between our indicators and changes in TFP and output per capita; innovations in some sub-groups have had a greater impact on output and productivity than others and, moreover, the key players have changed over time. Our indicators can be used to shed light on number of important issues including the empirical relationship between technology shocks and employment, the role of technology in cross-country productivity differences, and the part played by technological change in growing skills premia in the U.S. during the last few decades.
    Keywords: Business Cycles, Technical change, productivity, measurement
    JEL: E3 O3 O4
    Date: 2010–01–26
  9. By: Ana Margarida Fernandes; Caroline Paunov
    Abstract: This paper investigates whether increased import competition leads firms to engage in incremental innovation reflected in product quality upgrading. The econometric analysis relies on a rich dataset of Chilean manufacturing firms and their products. Product quality is measured with unit values (prices) and imports’ transport costs are used as an exogenous proxy for import competition. The estimates show a negative effect of transport costs on product quality. The paper provides explicit evidence that estimated increases in unit values capture product quality upgrading, and that competition effects of imports explain our results. Easier access to intermediate inputs also fosters quality upgrading.<BR>Cet article examine si le fait d’être en compétition avec des produits d’importation affecte la décision des entreprises de s’engager dans l’innovation incrémentale, qui se reflète dans une amélioration de la qualité des produits. Les résultats économétriques sont fondés sur de riches données chiliennes d’entreprises et de leurs produits. La qualité des produits est mesurée par leur valeur unitaire (leur prix) et le coût de transport des importations est utilisé comme une mesure exogène du degré de compétition des importations. Les estimations montrent un effet négatif du coût de transport sur la qualité des produits. L’article démontre que les incréments dans la valeur unitaire reflètent les incréments dans la qualité des produits et que la compétition explique nos résultats. Un accès plus aisé aux produits intermédiaires participe également à une amélioration de la qualité des produits.
    Keywords: Chile, transport costs, firm level data, import competition, incremental innovation, multi-product firms, output, product quality, unit values, Chili, données de firmes, compétition des importations, innovation incrémentale, entreprises multi-produits, qualité des produits, coût de transport, valeur unitaire de la production
    JEL: F14 L6 O31
    Date: 2010–01–26
  10. By: Klarl, Torben
    Abstract: Understanding the way in which knowledge is technically produced and transferred, and how its diffusion path can be characterized is of fundamental importance for the performance of an economy. Although this fact seems to be plausible ex ante, the relevant literature so far has paid less attention investigating the microeconomic link between knowledge transfer and knowledge diffusion in a comprehensive approach. The aim of this paper is to highlight the link between knowledge transfer, knowledge diffusion and network effects in a stochastic environment, because the adoption decision of new knowledge should be treated as a stochastic event. For this reason, a new knowledge diffusion model in the line of Bass (1969) has been put forward, which integrates knowledge diffusion and knowledge transfer. The advantage of the proposed model is twofold. From a theoretical point of view, not only the so-called unimodal diffusion phenomena can be modelled, but also bimodal diffusion phenomena can be obtained. From an empirical point of view, the model which incorporates heteroscedastic errors and mean reverting behaviour can be theoretically estimated directly within a standard SUR context. --
    Keywords: Knowledge diffusion,knowledge transfer,SUR
    JEL: C50 C51 C61 D89
    Date: 2009

This nep-ino issue is ©2010 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.