nep-ino New Economics Papers
on Innovation
Issue of 2015‒06‒13
twenty papers chosen by
Steffen Lippert
University of Auckland

  1. Dynamics of innovation and efficiency in banking system: An application of SFA and meta-frontier method By Sanatkhani, Mahboobeh; Vasaf, Esmaeil
  2. Directed Technical Change and Capital Deepening: A Reconsideration of Kaldor’s Technical Progress Function By Schlicht, Ekkehart
  3. Credit constraints, endogenous innovations, and price setting in international trade By Eckel, Carsten; Unger, Florian
  4. How Do Native and Migrant Workers Contribute to Innovation? By Fassio, Claudio; Montobbio, Fabio; Venturini, Alessandra
  5. The virtuous circle of innovation in Italian firms By Francesco Bogliacino; Matteo Lucchese; Leopoldo Nascia; Mario Pianta
  6. The Shaping of Skills:Wages, Education, Innovation By Valeria Cirillo; Mario Pianta; Leopoldo Nascia
  7. Low Carbon Development: The Challenges of Green Energy Innovation By Frank L. Bartels; Bianca Cravenna
  8. Data Uncertainty in Markov Chains: Application to Cost-Effectiveness Analyses of Medical Innovations By Goh, Joel; Bayati, Mohsen; Zenios, Stefanos A.; Singh, Sundeep; Moore, David
  9. Do We Have to Be Afraid of the Future World of Work? By Eichhorst, Werner
  10. The Impact of Pharmaceutical Innovation on Premature Cancer Mortality in Canada, 2000-2011 By Frank R. Lichtenberg
  11. Intellectual Property Rights and Innovation: Evidence from Health Care Markets By Heidi L. Williams
  12. Innovation and Top Income Inequality By Philippe Aghion; Ufuk Akcigit; Antonin Bergeaud; Richard Blundell; David Hémous
  13. National or international public funding? Subsidies or loans? Evaluating the innovation impact of R&D support programmes By Huergo, Elena; Moreno, Lourdes
  14. Establishing Relationships with New Suppliers Having Distant Knowledge to Target Discontinuous Innovation By Jouini, Sihem Ben Mahmoud; Charue-Duboc, Florence
  15. Determinants of R&D offshoring By Gavin Murphy; Iulia Siedschlag
  16. Macro-Economic Models for R&D and Innovation Policies By Francesco Di Comite; d’Artis Kancs
  17. Business Cycles, Technology and Exports By Dario Guarascio; Mario Pianta; Matteo Pugliese; Francesco Bogliacino
  18. Are public and private R&D investments complements or substitutes? By Bohnstedt, Anna
  19. Women Entrepreneurs in Chile: Three decades of Challenges and Lessons on Innovation and Business Sustainability By Mandakovic Vesna; María Teresa Lepelev; Olga Pizarro
  20. A New Approach to Estimation of the R&D-Innovation-Productivity Relationship By Christopher F Baum; Hans Lööf; Pardis Nabavi; Andreas Stephan

  1. By: Sanatkhani, Mahboobeh; Vasaf, Esmaeil
    Abstract: Abstract One of the most important problems in innovation arguments is how to identify and measure innovation. In industry sector, the available measurements to identify innovation activities are number of patents, R&D expenditure and share of R&D workers. Unfortunately these measurements for service sector especially financial sector are problematic and not readily available. This paper, following Bos et al. (2009), proposes changes of Technology Gap Ratio (TGR) as innovation activity in banking system and investigates it for the US commercial banks in years 2000-2013. For this purpose, at first step, the annual cost frontier functions (as representative of technology set for each year) are estimated by applying Stochastic Frontier Analysis (SFA). Consequently, the efficiency scores for each year are calculated for banks which operate under the same frontier functions. Then, the meta-frontier analysis is employed to estimate the potentially available cost function for the whole period. In next step, the TGR which indicates the relative distance of annual cost frontier function to the most efficient cost function (meta-frontier cost function) for the whole period is calculated. Finally, changes of TGR as a proxy of financial innovation during the time are illustrated by proper Salter curves. Results show that the average of TGR for the period 2000 to 2011 was associated with 2.88% annual growth rate. In other words, commercial banks in this period demonstrated an increasing level of innovation in their activities including financial products and services. In contrast, the results show that in last two years (2012 and 2013) this ratio had a considerable reduction, even less than the initial year. Thus, it seems that they have been less involved in innovation activities during the recent years.
    Keywords: Technology Gap Ratio (TGR), Stochastic Frontier Analysis (SFA), Meta-frontier cost function, banking system, Efficiency.
    JEL: G21
    Date: 2014–10–29
  2. By: Schlicht, Ekkehart
    Abstract: This note proposes a growth model that is derived from the standard Solow growth model by replacing the neoclassical production function with Kaldor’s technical progress function while maintaining a marginalist theory of factor prices in the spirit suggested by von Weizsäcker (1966, 1966b). The hybrid model so obtained accounts for balanced growth in a way that appears less arbitrary than the Solow model, especially because it directly accounts for Harrod neutral technical change, without any need for further assumptions.
    Keywords: directed technical change; directed technological change; bias in innovation; technical progress function; neoclassical production function; Harrod neutrality; Hicks neutrality; Cambridge theory of distribution; marginal productivity theory; Kaldor; Kennedy; von Weizsäcker; Solow model
    JEL: O30 O40 E12 E13 E25 B59 B31
    Date: 2015–06–19
  3. By: Eckel, Carsten; Unger, Florian
    Abstract: We introduce credit frictions motivated by moral hazard in a general equilibrium model of international trade with two dimensions of heterogeneity and endogenous investments. Firms’ competitiveness consists of capabilities to conduct process and quality innovations at low costs, whereas investment outlays have to be financed by external capital. We show that the scope for vertical product differentiation in a sector determines how credit tightening affects investment and price setting. Consistent with recent empirical evidence, our model rationalizes positive as well as negative correlations of firm-level FOB prices with financial frictions and variable trade costs. Faced with an increase in the borrowing rate, producers reduce both types of innovation resulting in opposing effects on marginal production costs and prices. In general equilibrium, financial frictions intensify quality-based (cost-based) sorting of firms if the scope for vertical product differentiation is high (low). Consequently, credit tightening leads to firm exit, increased innovation activity among existing suppliers, and welfare losses that are larger in sectors with low investment intensity.
    Keywords: international trade; external finance; credit constraints; moral hazard; quality; innovation; product Prices.
    JEL: F12 G32 L11
    Date: 2015–05–21
  4. By: Fassio, Claudio; Montobbio, Fabio; Venturini, Alessandra (University of Turin)
    Abstract: This paper uses the French and the UK Labour Force Surveys and German Microcensus to estimate the effects of the different components of the labour force on innovation at the sectoral level between 1994 and 2005, focusing in particular on the contribution of migrant workers. We adopt a production function approach in which we control for the usual determinants of innovation, such as R&D investments, stock of patents and openness to trade. To address for the possible endogeneity of migrants we implement instrumental variable strategies using both two-stage least squares with external instruments and GMM-SYS with internal ones. In addition we also account for the possible endogeneity of native workers and instrument them accordingly. Our results show that highly educated migrants have a positive effect on innovation even if the effect is smaller relative to the one of the educated natives. Moreover this positive effect seems to be confined to the high tech sectors and among highly educated migrants from other European countries.
    Date: 2015–05
  5. By: Francesco Bogliacino (Universidad Nacional de Colombia); Matteo Lucchese (Istituto Nazionale di Statistica, Department of Economics, Society & Politics, Università di Urbino "Carlo Bo"); Leopoldo Nascia (Istituto Nazionale di Statistica); Mario Pianta (Department of Economics, Society & Politics, Università di Urbino "Carlo Bo")
    Abstract: The “virtuous circle” between innovative inputs, outputs and economic performance is investigated in this article with a three equation model highlighting feedback loops and simultaneous relations. An empirical test is carried out considering innovative expenditure, innovative turnover and economic results in a sample of Italian manufacturing firms which are ‘serial innovators’. We use data for the period 2000-2008 from a rich panel of Italian firms over 50 employees drawn from ISTAT, the National Institute of Statistics, including data from three waves of Community Innovation Surveys. The model we use extends the one developed at the industry level by Bogliacino and Pianta (2013a, 2013b), confirming previous findings. For the – rather limited – core of Italian persistent innovators, results show the complex links at play, the lags in the effects of innovative efforts, and the feedbacks between economic success and the ability to sustain innovation expenditure.
    Keywords: Innovation, economic performance, three equation model, Italian firms
    JEL: L6 L8 O31 O33 O52
    Date: 2015
  6. By: Valeria Cirillo (Department of Statistical Sciences, Sapienza University of Rome); Mario Pianta (Department of Economics, Society & Politics, Università di Urbino "Carlo Bo"); Leopoldo Nascia (Istituto Nazionale di Statistica)
    Abstract: This paper investigates the role of wages, education and innovation in shaping employment structures in manufacturing and services of five European countries (Germany, France, Spain, Italy and United Kingdom), with specific respect to skills in the long term (1999-2011). Using data on employment by skill level and several measures of industries’ technological efforts provided by four waves of Community Innovation Survey, we study the relationship between micro and macro factors and employment dynamics by skill. As micro factors, we consider the role of education and wages by employee; as macro elements we study the role of technologies and demand shaping job growth by skill group. Relying on a sectoral demand curve deriving from a translong cost function, we empirically estimate the relationship between wages, education, technologies, demand and employment. The results reveal that skills are differently affected by education, wages and technologies and a variety of employment patterns has to be detected. In 1999-2011, manufacturing shows a pattern of relative skill upgrading; conversely a smoothed polarizing trend is detected in services. While a process of relative skill upgrading is detected in manufacturing; conversely a smoothed polarizing trend is detected in services.
    Keywords: Skills, Innovation, Labor markets, Wages, Education
    JEL: J31 O30
    Date: 2015
  7. By: Frank L. Bartels; Bianca Cravenna
    Abstract: The pivotal issue in the current wide-ranging debate on sustainability, economic growth, the environment and Low Carbon Development (LCD) , taking departure from the perspective of “The Limits to Growth”, is managing the global commons (Nordhaus, 1994) in an intergenerational context (Arrow et al., 2013). Jordan and Fortin (2002. p. 366) conclude that biological relationships in ecological systems require maintenance and “thus, sustainability is a scale and topology issue, requiring not just the size of the economy in resource use per capita, but such an ecological value (spatial scarcity, ecological turnover times, inter-generational environmental lags) linked over space and time”. In this paper an overview of the different positions regarding LCD is provided and it is argued that it is necessary for industrialized countries to take action in order to allow sustainable growth.
    Keywords: Innovation, low carbon development, green energy, sustainability, economic growth.
    Date: 2015
  8. By: Goh, Joel (Stanford University); Bayati, Mohsen (Stanford University); Zenios, Stefanos A. (Stanford University); Singh, Sundeep (Stanford University); Moore, David (Stanford University)
    Abstract: Cost-effectiveness studies of medical innovations often suffer from data inadequacy. When Markov chains are used as a modeling framework for such studies, this data inadequacy can manifest itself as imprecise estimates for many elements of the transition matrix. In this paper, we study how to compute maximal and minimal values for the discounted value of the chain (with respect to a vector of state-wise costs or rewards) as these uncertain transition parameters jointly vary within a given uncertainty set. We show that these problems are computationally tractable if the uncertainty set has a row-wise structure. Conversely, we prove that if the row-wise structure is relaxed slightly, the problems become computationally intractable (NP-hard). We apply our model to assess the cost-effectiveness of fecal immunochemical testing (FIT), a new screening method for colorectal cancer. Our results show that despite the large uncertainty in FIT's performance, it is highly cost-effective relative to the prevailing screening method of colonoscopy.
    Date: 2015
  9. By: Eichhorst, Werner (IZA)
    Abstract: There is considerable concern regarding the prospective development of employment levels and job types in the future. The paper tries to highlight major trends shaping the world of work in developed economies with the aim of giving a realistic account of probable developments and the contributions of different driving forces, importantly focusing on the role of actors such as policy makers, firms and individuals. While it is true that the future of work poses considerable challenges to actors at different levels, there is no need to be particularly worried.
    Keywords: future of work, globalization, innovation, structural change
    JEL: J11 J18 J21 J58
    Date: 2015–06
  10. By: Frank R. Lichtenberg
    Abstract: The premature cancer mortality rate has been declining in Canada, but there has been considerable variation in the rate of decline across cancer sites. I analyze the effect that pharmaceutical innovation had on premature cancer mortality in Canada during the period 2000-2011, by investigating whether the cancer sites that experienced more pharmaceutical innovation had larger declines in the premature mortality rate, controlling for changes in the incidence rate. The estimates imply that pharmaceutical innovation during the period 1985-1996 reduced the number of years of potential life lost to cancer before age 75 in 2011 by 105,366. The cost per life-year before age 75 gained from previous pharmaceutical innovation is estimated to have been 2730 USD. The evidence suggests that, even if these drugs had been sold at branded rather than generic prices, the cost per life-year gained would have been below 11,000 USD, a figure well below even the lowest estimates of the value of a life-year gained.
    JEL: C23 C33 I10 J11 J17 L65 O33
    Date: 2015–06
  11. By: Heidi L. Williams
    Abstract: A long theoretical literature has analyzed optimal patent policy design, yet there is very little empirical evidence on a key parameter needed to apply these models in practice: the relationship between patent strength and research investments. I argue that the dearth of empirical evidence on this question reflects two key challenges: the difficulty of measuring specific research investments, and the fact that finding variation in patent protection is difficult. I then summarize the findings of two recent studies which have made progress in starting to overcome these empirical challenges by combining new datasets measuring biomedical research investments with novel sources of variation in the effective intellectual property protection provided to different inventions. The first study, Budish, Roin, and Williams (forthcoming), documents evidence consistent with patents affecting the rate and direction of research investments in the context of cancer drug development. The second study, Williams (2013), documents evidence that one form of intellectual property rights on the human genome had quantitatively important impacts on follow-on scientific research and commercial development. I discuss the relevance of both studies for patent policy, and discuss directions for future research.
    JEL: I1 O3
    Date: 2015–06
  12. By: Philippe Aghion; Ufuk Akcigit; Antonin Bergeaud; Richard Blundell; David Hémous
    Abstract: In this paper we use cross-state panel data to show a positive and significant correlation between various measures of innovativeness and top income inequality in the United States over the past decades. Two distinct instrumentation strategies suggest that this correlation (partly) reflects a causality from innovativeness to top income inequality, and the effect is significant: for example, when measured by the number of patent per capita, innovativeness accounts on average across US states for around 17% of the total increase in the top 1% income share between 1975 and 2010. Yet, innovation does not appear to increase other measures of inequality which do not focus on top incomes. Next, we show that the positive effects of innovation on the top 1% income share are dampened in states with higher lobbying intensity. Finally, from cross-section regressions performed at the commuting zone (CZ) level, we find that: (i) innovativeness is positively correlated with upward social mobility; (ii) the positive correlation between innovativeness and social mobility, is driven mainly by entrant innovators and less so by incumbent innovators, and it is dampened in states with higher lobbying intensity. Overall, our findings vindicate the Schumpeterian view whereby the rise in top income shares is partly related to innovation-led growth, where innovation itself fosters social mobility at the top through creative destruction.
    JEL: D63 J14 J15 O30 O31 O33 O34 O40 O43 O47
    Date: 2015–06
  13. By: Huergo, Elena; Moreno, Lourdes
    Abstract: The objective of this study is to compare the effect of different types of public support for R&D projects on firms’ technological capabilities. We distinguish be-tween low-interest loans and subsidies and between national and European sup-port. Using data on 4,407 Spanish firms during the period 2002-2005, we estimate a multivariate probit to analyse the determinants of firms’ participation in public R&D programmes and, later, the impact of this participation on firms’ technologi-cal capabilities using different indicators. The results provide evidence of the ef-fectiveness of all treatments for improving firms’ innovative performance. With respect to innovation outputs, apart from the indirect effect of public support by stimulating R&D intensity, we also find evidence of a direct effect of participation in the CDTI credit system and in the European subsidy programme on the probability of obtaining innovations and applying for patents.
    Keywords: Soft loans, R&D subsidies, impact assessment
    JEL: H81 L2 L52 O3
    Date: 2014–03–07
  14. By: Jouini, Sihem Ben Mahmoud; Charue-Duboc, Florence
    Abstract: A discrepancy exists in the literature regarding the type of suppliers to consider when targeting discontinuous innovation (DI). Some authors suggest that DI require leveraging knowledge from a selection of familiar and trustful suppliers, whereas others claim that DI requires leveraging distant knowledge from new suppliers. The authors argue that establishing relationships with a new supplier mastering knowledge distant from the firm’s one, requires a specific process. Based on a longitudinal study in a firm that developed such relationships and succeeded in enhancing DI, they underline three characteristics of the approach adopted: (i) proposing an open enough formulation to give the suppliers the opportunity to value their competencies but well documented, (ii) having a structured and transparent process, supporting a mutual progressive commitment and (iii) dedicating a specific entity with access to the top management and technical specialists, with a global vision of the questions to be tackled.
    Keywords: Discontinuous innovation; early supplier involvement; leveraging external knowledge
    Date: 2014–01–05
  15. By: Gavin Murphy (Economic and Social Research Institute); Iulia Siedschlag (European Commission JRC-IPTS)
    Abstract: We analyse determinants of an enterprise’s decision to offshore R&D activities using a novel data set for enterprises in Ireland over the period 2001-2006. Our results suggest that, on average, other things equal, enterprises integrated in international production and innovation networks, and enterprises which used information and communication technologies (ICT) more intensively were more likely to offshore R&D. Furthermore, characteristics of the import source region had an important influence on enterprise offshoring behaviour, with offshoring to regions outside of the advanced European Union’s economies being less likely.
    Keywords: Global production and innovation networks; International sourcing of R&D.
    JEL: F14 F23 D22
    Date: 2015
  16. By: Francesco Di Comite (European Commission JRC-IPTS); d’Artis Kancs (European Commission JRC-IPTS)
    Abstract: This report compares R&D modelling approaches in four macroeconomic models used by the European Commission for ex-ante policy impact assessment: one Dynamic Stochastic General Equilibrium (DSGE) model – QUEST; one Spatial Computable General Equilibrium (SCGE) model – RHOMOLO; one Computable General Equilibrium (CGE) model – GEM-E3; and one macro-econometric model – NEMESIS. The report critically compares particularly those parts of the four models that are relevant to R&D transmission mechanisms and interfaces for implementing policy shocks. Given that R&D investment decisions are inherently dynamic, QUEST appears to be the most suitable model for assessing the impact of R&D and innovation policies over time, as it is the only model with inter-temporal optimisation of economic agents. In order to address questions related to geographic concentration of innovative activities and spatial knowledge spillovers, RHOMOLO has a comparative advantage, as it is the only one which models regional economies and spatial interactions between them explicitly. Due to its detailed treatment of energy sectors and environmental issues, GEM-E3 appears to be the most suitable model for assessing the impact of innovation in clean energy. For a more detailed modelling of different types of innovation measures, NEMESIS can provide valuable insights thanks to its richness in estimating and accounting for specific channels of innovation. We also identify avenues for future research, which in our view could improve the modelling of R&D and innovation policies both from a conceptual and empirical perspective.
    Keywords: RHOMOLO, QUEST, GEM-E3, NEMESIS, Macro-Economic Models, General Equilibrium, R&D Policies
    JEL: C68 D24 D58 H50 O31 O32
    Date: 2015
  17. By: Dario Guarascio; Mario Pianta; Matteo Pugliese; Francesco Bogliacino
    Abstract: This article shows -on both conceptual and empirical grounds- the importance of business cycles in affecting key relationships between innovation and international performance. While periods of upswing are characterised by a well documented "virtuous circle" between innovation inputs, new products and export success, during downswings most of the positive relationships and feedbacks tend to break down. The findings of Guarascio et al. (2014) on the long-term relationships between R&D, new products and exports are confirmed and qualified with major novelties. But when the period of analysis is split between periods of upswing and downswing -following Lucchese and Pianta (2012)- significantly different relationships emerge. These results are obtained through an approach that combines several complementary perspectives. A Schumpeterian view on the diversity of technological change allows to disentangle the specificities and effects of innovation inputs and outputs, and of new products and new processes. A structural change perspective on the role of demand as a driver of innovation and on the importance of open economies allows to link industries' dynamics with international competitiveness. A business cycle perspective crossing the two previous appraoches sheds new light on the fragility of key economic relationships and on the long term damage that recessions may cause to the "virtuous circle" of innovation and performance. The model we propose links exports, R&D and innovation success in a system of three simultaneous equations allowing for the presence of feedbacks loops among key variables. The empirical test is carried out for the period 1995-2010 at the industry level, on 21 manufacturing and 17 service sectors; country coverage includes Germany, France, Italy, Spain, the Netherlands and the United Kingdom, representing a very large part of the European economy.
    Keywords: Business cycles, Innovation, Export, Three Stage Least Squares
    Date: 2015–03–06
  18. By: Bohnstedt, Anna
    Abstract: We develop a general equilibrium model with heterogeneous firms à la Melitz (2003), where both the government and firms can invest into R&D to improve the country's technological potential. A higher technological potential raises the average productivity of firms, thus implying lower consumer prices, and eventually leads to a welfare gain. The government's public and firms' private investments are modelled in a three-stage game, in which the government in the first stage invests into a basic research level, and then firms conduct private R&D building on this publicly provided 'technology' in the second stage. We find that private R&D investments are hump-shaped with respect to the basic research level. For lower levels public and private investments are complements, while for higher levels they are substitutes.
    Abstract: Der Artikel untersucht in einem allgemeinen Gleichgewichtsmodell den Zusammenhang zwischen öffentlichen und privaten Investitionen in Forschung und Entwicklung. Öffentliche Investitionen des Staates sowie private Investitionen von Firmen verbessern gemeinsam die durchschnittliche Produktivität der Firmen. Die höhere durchschnittliche Produktivität führt zu sinkenden Konsumentenpreisen und daraus resultierend zu Wohlfahrtsgewinnen. In einem dreistufigen Spiel investiert in der ersten Stufe der Staat in eine zugrunde liegende 'Technologie'. In der zweiten Stufe treffen Firmen ihre Investitionsentscheidung, basierend auf den öffentlichen Investitionen und der bereitgestellten Technologie. Für die Beziehung zwischen öffentlichen und privaten Investitionen in Forschung und Entwicklung finden wir einen umgekehrt u?förmigen Zusammenhang. Für öffentliche Investitionen unterhalb eines bestimmten Schwellenwertes besteht ein komplementärer Zusammenhang, während bei öffentlichen Investitionen, die diesen Schwellenwert überschreiten, ein substitutiver Zusammenhang zwischen öffentlichen und privaten Investitionen existiert.
    Keywords: heterogeneous firms,public and private R&D investments,basic research,innovation
    JEL: O3 H4
    Date: 2014
  19. By: Mandakovic Vesna; María Teresa Lepelev; Olga Pizarro (School of Business and Economics, Universidad del Desarrollo)
    Abstract: This study is framed on a global vision of women participation in entrepreneurial activity as an introductory note and proceeds with a comprehensive assessment of the experience of women entrepreneurs in Chile in the last thirty years. Chile is one of the fastest growing and most stable economies in Latin America and among developing countries with a 5.7 percent unemployment and 14.8 percent poverty level. This case study is focused on Chilean women entrepreneurs from a business sustainability dimension, providing the experience of a pioneer country that introduced entrepreneurship as a central economic development strategy since the late seventies.
    Keywords: Women Entrepreneurs,innovation, business sustainability, economies, América Latina, Chile.
    Date: 2014–04
  20. By: Christopher F Baum (Boston College; DIW Berlin); Hans Lööf (Royal Institute of Technology, Stockholm); Pardis Nabavi (Royal Institute of Technology, Stockholm); Andreas Stephan (Jönkoping International Business School)
    Abstract: We evaluate a Generalized Structural Equation Model (GSEM) approach to the estimation of the relationship between R&D, innovation and productivity that focuses on the potentially crucial heterogeneity across technology and knowledge levels. The model accounts for selectivity and handles the endogeneity of this relationship in a recursive framework. Employing a panel of Swedish firms observed in three consecutive Community Innovation Surveys, our maximum likelihood estimates show that many key channels of inuence among the model's components differ meaningfully in their statistical significance and magnitude across sectors defined by different technology levels.
    Keywords: R&D, Innovation, Productivity, Generalized Structural Equation Model, Community Innovation Survey
    JEL: C23 L6 O32 O52
    Date: 2015–05–29

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