nep-ino New Economics Papers
on Innovation
Issue of 2014‒09‒05
twelve papers chosen by
Steffen Lippert
University of Auckland

  1. Impact of research tax credit on R&D and innovation: evidence from the 2008 French reform By Loriane Py; Antoine Bozio; Delphine Irac
  2. Augmented and Unconstrained: revisiting the Regional Knowledge Production Function By Sylvie Charlot; Riccardo Crescenzi; Antonio Musolesi
  3. Did Bank Distress Stifle Innovation During the Great Depression? By Ramana Nanda; Tom Nicholas
  4. The relationship between innovation, exports and economic performance. Empirical evidence for 21 EU countries By Fabian Unterlass
  5. Innovation, exports and technical efficiency in Spain By Rosario Sanchez; Angeles Díaz
  6. SNA-Based Innovation Trend Analysis in Software Service Networks By Kibae Kim; Wool-rim Lee; Jorn Altmann
  7. The Effect of R&D Subsidy for Small and Medium Enterprises By Chanyoung Hong; Jung In Yeon; Jeong-Dong Lee
  8. Is Geographic Nearness Important for Trading Ideas? Evidence from the US By Drivas, Kyriakos; Economidou, Claire
  9. Boosting the Attractiveness of the European Union to International Investment in R&D Activities: What Matters?" By Siedschlag, Iulia; Smith, Donal; Turcu, Camelia; Zhang, Xiaoheng
  10. Localization of Knowledge-creating Establishments By INOUE Hiroyasu; NAKAJIMA Kentaro; SAITO Yukiko
  11. Global trajectories, dynamics, and tendencies of business software piracy: benchmarking IPRs harmonization By Asongu Simplice; Andrés Antonio
  12. Boosting scientific publications in Africa: which IPRs protection channels matter? By Asongu Simplice

  1. By: Loriane Py; Antoine Bozio; Delphine Irac
    Abstract: R&D and innovation are seen as key determinants of productivity and competitiveness and it has been recognized that the low growth performances of EU countries of the last decades can largely be attributable to their poor research performance, as compared to the US. As a consequence, most EU countries, in particular since the adoption of the Lisbon strategy, have provided tax incentives to increase business R&D, which still remains below the targeted level of 2% of GDP. In the actual context of large public deficit and given the amount of public spending involved, it is crucial to evaluate the impact and effectiveness of these policies. The aim of this paper is to contribute to this literature by evaluating the impact of the research tax credit system on both R&D investments and innovation. In our empirical analysis, we focus on the 2008 French reform, which was marked by the adoption of a pure volume-based scheme.Our empirical analysis relies on an ex post econometric evaluation of the 2008 reform. It is based on the combination of four datasets over the period 2004-2010: i) the yearly survey on R&D investments conducted by the French Ministry of Research which contains detailed information on firms' R&D, ii) the PATSTAT dataset of the European Patent Office which enables us to measure innovation at the firm-level (as measured by a count of the number of patents) iii) the tax files which enables us to identify all the firms in France which benefit from the research tax credit as well as it amount, and iv) the FIBEN dataset of the Banque de France which is used to control for firms' economic and financial characteristics. Our final sample includes 48,111 firms, from which 51.3% have taken advantage of the research tax credit. Our econometric strategy relies on the implementation of a difference in difference which amounts to comparing R&D and innovation outcome for firms which benefit from the research tax credit and for those which do not, before and after the implementation of the reform. The fact that each year in France, nearly 49% of firms which are registered in the R&D survey and which have positive R&D expenditures do not ask for the research tax credit can have several explanations: firms might not be aware of the policy, their R&D activities might not be eligible to the tax credit, asking for the research tax credit might be too complex and costly or firms might want to avoid a tax audit. Nevertheless, as we cannot exclude the possibility of a selection bias in the sample of treated and control firms, we also implemented propensity score matching analysis and are currently trying to refine our empirical strategy by using the suppression of the research tax credit ceiling. Our preliminary results suggest that firms which did benefit from the R&D tax credit relative to those that did not ask for it have significantly increased their R&D expenditures after the 2008 reform. Our results also show that the estimated elasticity differs when we focus on the intensive margin (i.e. when the sample is limited to firms which already ask for the research tax credit before the reform) as the reform led to a large number of firm entry in the tax credit scheme which are relatively smaller in terms of R&D investments. More importantly, we do not find evidence of a significant impact on innovation as measured by the number of patents at the firm level, up to 2 years after the implementation of the reform. Though the time span of analysis is short and that patenting can take more years, these preliminary results suggest that the effects of research tax credit on innovation might be more limited than expected. Finally, our results enable us to shed light on the relative effectiveness of the volume scheme as compared to the incremental one.
    Keywords: France, Tax policy, Impact and scenario analysis
    Date: 2014–07–03
  2. By: Sylvie Charlot (GAEL UMR 1215, INRA; University of Grenoble, France.); Riccardo Crescenzi (London School of Economics, Spatial Economics Research Centre, UK.); Antonio Musolesi (Dept. of Economics and Management. University of Ferrara, Italy.)
    Abstract: By adopting a semiparametric approach, the 'traditional' regional knowledge production function is developed in three complementary directions. First, the model is augmented with region-specic time trends in order to account for endogeneity due to selection on unobservables. Second, the nonparametric part of the model relaxes the standard assumptions of linearity and additivity regarding the effect of R&D and human capital. Finally, the assumption of homogeneity in the effects of R&D and human capital is also relaxed by explicitly accounting for the differences between developed and lagging regions. The analysis of the genesis of innovation in the regions of the European Union unveils nonlinearities and threshold effects, complex interactions, and shadows effects that cannot be uncovered by standard parametric formulations.
    Keywords: Innovation, Europe, R&D, Regional knowledge production function, Semiparametric models
    JEL: O32 R11 C14 C23
    Date: 2014–08
  3. By: Ramana Nanda; Tom Nicholas
    Abstract: We find a negative relationship between bank distress and the level, quality and trajectory of firm-level innovation during the Great Depression, particularly for R&D firms operating in capital intensive industries. However, we also show that because a sufficient number of R&D intensive firms were located in counties with lower levels of bank distress, or were operating in less capital intensive industries, the negative effects were mitigated in aggregate. Although Depression era bank distress was associated with the stifling of innovation, our results also help to explain why technological development was still robust following one of the largest shocks in the history of the U.S. banking system.
    JEL: G21 N22 O30
    Date: 2014–08
  4. By: Fabian Unterlass
    Abstract: This paper discusses the interplay between exports and innovation and both their effects on economic performance. The European Union makes major efforts to improve the innovation performance of its companies with the aim to improve the global competitive position of the Union and create jobs and wealth. Firms that are involved in international activities through exports or foreign direct investment are typically top performers in terms of their capability to generate value added as well as employment and productivity (see e.g. Mayer and Ottaviano 2007). From the policy point of view this implies that more of Europe's innovative companies should compete and be competitive on global markets and create revenue and jobs at home. However, the relationship between innovation, exporting and economic performance is by no means unidirectional. It is difficult to show whether superior export performance is determined by a superior innovation performance, or whether internationalisation supports innovation. The major issue here is to control for endogeneity between these two dimensions. Exporting might positively affect innovation via learning effects, resource effects and / or incentive effects. On the other hand, innovation improves productivity and therefore increases a company's competitiveness such that it selects itself into the export market. Alternatively, product innovations might also create (temporary) monopolies in niche markets. Testing these issues emerging from the literature we use firm level data from the 3rd European Community Innovation Survey (CIS3) for 21 countries for the years 1998-2000 accessed at the Eurostat Safe Centre in Luxemburg. In order to overcome problems referring to endogeneity, we empirically investigate the effects of exporting in the first year of the observed time frame on innovation input, while we explain in a second model exports in the final observed year by innovation output indicators. We find strong evidence that innovation improves the export performance of companies, whereas this pattern varies with the stage of economic development. While firms in highly innovative sectors in the more advanced member states need high degrees of appropriability, i.e. the possibility to protect their innovations, and have to continuously improve their knowledge base to participate in export markets, it is productivity and price-based competitiveness for low innovation-intensive sectors. This reflects the alternative patterns of niche markets on one hand, and self-selection on the other, that allow firms to export. While the nature of the data does not allow us to draw satisfactory conclusions on the causal link between exports and innovation, we could find positive effects of exporting on innovation activities only for small companies, while large companies are not more likely to innovate when they are exporting. We therefore conclude that the positive impact of exports results from additional financial resources available for exporting SMEs, while learning effects are comparably small. However, we only investigated exports but did not consider different kinds of internationalisation due to data constraints. The picture might change in this case. Finally, we argue that both innovation and exports have positive effects on a firm's economic performance. We find strong evidence that innovation is an important driver for productivity growth, whereas the positive effect increases when a company (and the country the firm is located in) approaches the technology frontier. Furthermore, our results indicate that in the medium to low innovation intensive sectors productivity growth is mainly driven by process innovations, while in high-technology sectors in the more advanced member states productivity growth is strongly driven by product innovations. This is in line with the idea that in high-tech niche markets it is product quality which leads to higher prices. Competition in these markets is not based on prices but on product quality. In the low-technology sectors, competition is mainly based on prices and therefore process innovation plays a decisive role. In addition, we also find evidence that the effects of innovation and exporting on employment and turnover growth follow patterns that are dependent of the stage of technological development. The impact of exports on employment growth increases with an increasing distance of the company's home country from the technological frontier. Companies in these countries have a comparative advantage in wage levels. Interestingly, exporting has positive effects on labour productivity mainly in highly innovation-intensive sectors in the more advanced countries on the one hand, and in less innovation-intensive sectors in countries that are further away from the technological frontier. Probably, this result reflects comparative advantages and volume effects (economies of scale) of exporting. The prior companies increase their export share by increased competitiveness based on high-quality products, the latter based on wage levels. Finally, the joint effects of exporting and innovation on turnover growth and therefore also productivity growth are positive for high-tech sectors in technologically advanced countries. This indicates that companies that are active in these sectors have to internationalise their economic activities to reap the benefits from their innovation efforts. Domestic markets tend to be too small and niche. This result claims for supporting innovative companies in these sectors to start exporting. See above See above
    Keywords: EU, Impact and scenario analysis, Impact and scenario analysis
    Date: 2013–06–21
  5. By: Rosario Sanchez; Angeles Díaz
    Abstract: The main purpose of this work is to analyse the effect of exports intensity and R & D activities in technical efficiency using data of Spanish manufacturing firms during the period 2004-2009. In a previous work, Diaz and Sanchez (2008) found that size was an important determinant of technical efficiency. Also, in Sánchez and Díaz (2013) innovation was an important determinant of efficiency for large firms but not for small and medium sized firms. Perhaps because large firms are more easily able to obtain external financing and thus finance their R & D activities and obtain product and process innovation that allows them to gain competitiveness in foreign markets. Size is also related to the ability of firms to compete in foreign markets. So we will focus on exporting companies to investigate the relationship between exports, and efficiency. As it is well known the exporting firms are more competitive than those that are not focused on foreign markets. To obtain empirical evidence we estimate a value added production function following the methodology of the Stochastic Frontier Approach, first developed by Farrell (1957) and widely used in empirical works. Using this methodology several works have analysed technical inefficiency: Caves and Barton (1990) analyse technical efficiency for manufacturing firms in United States; Green and Mayes (1991) analyse technical inefficiency for United Kingdom; and Patibandla (1998) proves the relevance of capital market imperfections on the structure of an industry; Dilling-Hansen et al. (2003), and Kumbhakar et al., (2011) analyse the effect of R&D investment on relative efficiency; Diaz and Sánchez (2008) analyse the impact of size on efficiency; and Sánchez and Diaz (2013) focus in the effect of product and process innovation over technical efficiency, obtaining that large firms’ innovation are more efficient than the small one. The inefficiency determinants can be due to environmental or firm specific factors. Here we focus on these firms specific factors to provide an explanation to the differences in technical inefficiency across Spanish manufacturing firms. Inefficiency tends to be smaller for firms with a higher ratio of gross investment over capital. Firms that account for this kind of investment become more competitive as a consequence of having a higher efficiency in their production process. Also, we found that exporting firms are closer to the stochastic frontier. They have to be more competitive to sell in international markets. Only the most efficient firms survive in the highly competitive international market. Size is another determinant of technical efficiency. Even though the impact of size in technical efficiency is not clearly determined in empirical and theoretical frameworks, here we obtain a positive and significant effect over efficiency. What it means that large firms are closer to the efficient frontier. In addition, efficiency tends to be smaller for those firms with a higher proportion of external funds over value added.
    Keywords: Spain, Trade issues, Sectoral issues
    Date: 2014–07–03
  6. By: Kibae Kim (College of Engineering, Seoul National University); Wool-rim Lee (College of Engineering, Seoul National University); Jorn Altmann (College of Engineering, Seoul National University)
    Abstract: Service networks can be considered to be open innovation systems. It has led to research on the structure of these networks, concentrating on the static network topology and its effect on innovation. However, the research misses the changes of network positions over time. In this paper, we examine the changes of nodes¡¯ positions in a software service network. The software service network has been built from empirical data. In this network, a node represents a Software-as-a-Service (SaaS) service and a link denotes a re-use of existing software services through a new service. Our results suggest that: first, software services undergo life cycles in their network positions; second, some software services achieve to hub position in their life cycle while others a core position; and third, an innovation trend appears at service category level not just by a single service. These results imply that innovation studies should not only consider static network positions and topologies but also trends of changing positions within the network.
    Keywords: Open Innovation, Network Centralities, Software-as-a-Service, Composite Services, Service Network, Innovation Trend.
    JEL: D85 L86 O33
    Date: 2014–08
  7. By: Chanyoung Hong; Jung In Yeon; Jeong-Dong Lee
    Abstract: Research and development (R&D) is regarded as a core factor which decides the productivity of a firm in the analysis of modern industrial economics. But the R&D behavior and the consequent effect are observed to be different depending on the firm size and industry belonging. Despite the tendency to show less amount in its expenditure, R&D of small and medium enterprises (SMEs) is important because SMEs occupy major part in the number of firms and employees of a nation. This research analyzes the effect of R&D subsidy for SMEs across industry and national economy. In order to achieve the purpose, macroeconomic model of computable general equilibrium (CGE) is used. The typical form of CGE model is modified into knowledge-based one which has additional accounts and equations to incorporate R&D-related factors. Furthermore, social accounting matrix (SAM) in the model differentiates between SMEs and large firms in each industry. The simulation results are expected to show us that R&D in SMEs causes different effects and implications on various sides such as employment, knowledge stock and GDP growth. For example, subsidy for SMEs may not be relatively effective for GDP growth, but it may cause more increase in employment.
    Keywords: South Korea, General equilibrium modeling, Public finance
    Date: 2014–07–03
  8. By: Drivas, Kyriakos; Economidou, Claire
    Abstract: This paper studies the relative geographic scope of two different channels of knowledge flows, a market channel where knowledge diffuses via patent transactions and a non-market channel where knowledge spillovers operate via patent citations. While there is significant work on informal non-market channels of knowledge diffusion, formal market channels of knowledge transfer are less studied, primarily due to the lack of comprehensive data. Using a newly compiled dataset by the Office of the Chief Economist at the United States Patent and Trademark Office of transactions of US issued patents, we are able to provide novel insights on the spread of patent transaction flows across the states of the US. Our findings support that geographic proximity, in terms of distance and border, matters for the spread of knowledge for both channels; however, it is more essential to the operation of market based (patent trades) than to the operation of non-market based (citations) flows. Although both flows are highly localized, the geographic scope of knowledge flows based on citations is larger than that of traded patents. Intra-sectoral flows are also found to be very localized with Mechanical sector to exhibit the most geographically confined knowledge flows, while flows from information technology sectors, i.e., Electronics and Computers, are the most far reached compared to the knowledge flows from the rest of the sectors, both in the US and abroad. Finally, there is no nuance evidence that the importance of distance has declined over time, either at state or national level for both types of flows.
    Keywords: patent transactions, citations, knowledge flows, localization, distance
    JEL: F10 F23 O33
    Date: 2014–08–05
  9. By: Siedschlag, Iulia; Smith, Donal; Turcu, Camelia; Zhang, Xiaoheng
    Date: 2014–07
  10. By: INOUE Hiroyasu; NAKAJIMA Kentaro; SAITO Yukiko
    Abstract: This study investigates the localization of establishment-level knowledge creation by using data from the Japanese patent database. Using distance-based methods, we obtained the following results. First, Japanese patent-creating establishments are significantly localized at the 5% level, with the range of localization at approximately 80 km. Second, localization was found for all patent technology classes, while the extent of localization differs among the classes. Third, the extent of localization is stronger in more creative establishments, in terms of both the number of patents created and the number of citations. These results suggest that geographical proximity is important for knowledge spillover regardless of the concerned technology and that creative establishments require external knowledge.
    Date: 2014–08
  11. By: Asongu Simplice (Yaoundé/Cameroun); Andrés Antonio (Madrid/Spain)
    Abstract: In this paper, we examine global trajectories, dynamics, and tendencies of software piracy to ease the benchmarking of current efforts towards harmonizing the standards and enforcements of Intellectual Property Rights (henceforth IPRs) protection worldwide. Our empirical exercise is based on 15 different panel regressions, which together consists of 99 countries. The richness of the dataset allows us to disaggregate countries into fundamental characteristics of business software piracy based on income-levels (high-income, lower-middle-income, upper-middle-income and low-income), legal-origins (English common-law, French civil-law, German civil-law and, Scandinavian civil-law) and, regional proximity (South Asia, Europe & Central Asia, East Asia & the Pacific, Middle East & North Africa, Latin America & the Caribbean and, Sub-Saharan Africa). Our main finding suggest that, a genuine timeframe for standardizing IPRs laws in the fight against software piracy is most feasible within a horizon of 4.3 to 10.4 years. In other words, full (100%) convergence within the specified timeframe will mean the enforcements of IPRs regimes without distinction of nationality or locality within identified fundamental characteristics of software piracy. The absence of convergence (in absolute and conditional terms) for the World panel indicates that, blanket policies may not be effective unless they are contingent on the prevailing trajectories, dynamics and tendencies of software piracy. Policy implications and caveats are also discussed.
    Keywords: Piracy; Business Software; Software piracy; Intellectual Property Rights; Panel data; Convergence
    JEL: F42 K42 O34 O38 O57
    Date: 2014–08
  12. By: Asongu Simplice (Yaoundé/Cameroun)
    Abstract: This paper examines how Africa’s share in the contribution to global scientific knowledge can be boosted with existing Intellectual Property Rights (IPRs) mechanisms. The findings which broadly indicate that tight IPRs are correlated with knowledge contribution can be summarized in two main points. First, the enshrinement of IPRs laws in a country’s Constitution is a good condition for knowledge economy. Secondly, while Main IP laws, WIPO treaties and Bilateral treaties are positively correlated with scientific publications, the IPRs law channel have a negative correlation. Whereas the study remains expositional, it does however offer interesting insights into the need for IPRs in the promotion of knowledge contribution within sampled countries of the continent. Other policy implications are discussed.
    Keywords: Publications; Intellectual property rights; Governance; Africa
    JEL: A20 F42 O34 O38 O55
    Date: 2014–08

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