nep-ino New Economics Papers
on Innovation
Issue of 2017‒02‒26
23 papers chosen by
Uwe Cantner
University of Jena

  1. Endogenous Appropriability By Joshua S. Gans; Scott Stern
  2. Innovation strategies of energy firms By Maria Teresa Costa-Campi; Néstor Duch-Brown; José García-Quevedo
  3. Innovation persistence and employment dynamics By Stefano Bianchini; Gabriele Pellegrino
  4. Employment Effects of Innovations over the Business Cycle: Firm-Level Evidence from European Countries By Bernhard Dachs; Martin Hud; Christian Koehler; Bettina Peters
  5. Demand Fluctuations and Innovation Investments: Evidence from the Great Recession in Spain By Armand, Alex; Mendi, Pedro
  6. Redistributive Innovation Policy, Inequality and Efficiency By Parantap Basu; Yoseph Getachew
  7. Effects of Intermediate Input Tariff Reduction on Innovations in China By Qing Liu; Larry D QiuAuthor-Workplace-Name: The University of Hong Kong
  8. The cognitive and geographical structure of knowledge links and how they influence firms’ innovation performance By Broekel, Tom; Boschma, Ron
  9. The role of innovation and agglomeration for employment growth in the environmental sector By Horbach, Jens; Janser, Markus
  10. University Students and Entrepreneurship. Some insights from a population-based survey By Ferrante, Francesco; Federici, Daniela; Parisi, Valentino
  11. Adoption Costs of Financial Innovation: Evidence from Italian ATM Cards By Kim Huynh; Philipp Schmidt-Dengler; Gregor W. Smith; Angelika Welte
  12. Back to Basics: Why do Firms Invest in Research? By Ashish Arora; Sharon Belenzon; Lia Sheer
  13. High-Skilled Immigration, STEM Employment, and Non-Routine-Biased Technical Change By Nir Jaimovich; Henry E. Siu
  14. Optimal Incentives for Patent Challenges in the Pharmaceutical Industry By Böhme, Enrico; Frank, Severin; Kerber, Wolfgang
  15. High-skilled migration and agglomeration By Pekkala Kerr, Sari; Kerr, William; Özden, Çağlar; Parsons, Christopher
  16. Regional development in the context of economic reform: The case of Limassol By Benner, Maximilian; Hirth, Jana; Kraatz, Fabian; Ludwig, Katja; Schrade, Jessi
  17. Persistence of Regional Entrepreneurship: Causes, Effects, and Directions for Future Research By Michael Fritsch; Michael Wyrwich
  18. The Impact of Climate Change Skepticism on Adaptation in a Market Economy By Matthew E. Kahn; Daxuan Zhao
  19. A cross-country empirical test of cognitive abilities and innovation nexus By Azam, Sardor
  20. One Lab, Two Firms, Many Possibilities: on R&D outsourcing in the biopharmaceutical industry By Billette de Villemeur, Etienne; Versaevel, Bruno
  21. Transformation Capacity of the Innovative Entrepreneur: On the interplay between social structure and agency By Grillitsch, Markus
  22. Sectoral Cognitive Skills, R&D, and Productivity: A Cross-Country Cross-Sector Analysis By Sasso, Simone; Ritzen, Jo
  23. Technical Change, Non-Tariff Barriers, and the Development of the Italian Locomotive Industry,1850-1913 By Carlo Ciccarelli; Alessandro Nuvolari

  1. By: Joshua S. Gans; Scott Stern
    Abstract: The appropriability of innovation depends not only on the instruments available to an innovator to protect private returns, but how those instruments interact with each other as part of the firm’s entrepreneurial strategy. We consider the interplay between two appropriability mechanisms available to start-up innovators: control, whereby the innovator earns rents from their establishment of formal intellectual property rights, versus execution, whereby innovators earn returns through a first-mover advantage that yields dynamic benefits allowing the firm to “get ahead, stay ahead.” While most prior work has taken these instruments to be independent, we establish that these two alternative appropriability instruments are substitutes on the margin. For example, if the learning advantage from execution is sufficiently high, an entrepreneur might choose not to invest in a patent, even if intellectual property protection is costless. Moreover, the endogenous choice between control and execution is interdependent with other strategic choices of start-up innovators, such as the choice to pursue a narrow or broad customer segment, or whether to commercialize a “minimal viable product” version of their innovation versus delay commercialization until a product is available with a higher level of technical functionality and reliability.
    JEL: O31 O34
    Date: 2017–02
  2. By: Maria Teresa Costa-Campi (Universitat de Barcelona & IEB); Néstor Duch-Brown (Institute for Prospective Technological Studies); José García-Quevedo (Universitat de Barcelona & IEB)
    Abstract: Investment by energy firms in innovation can have substantial economic and environmental impacts and benefits. Internal R&D is the main input and driver of the innovation process, but innovation involves other activities, including capital purchases and other current expenditures. While the R&D activities of energy firms have been analysed, few studies have examined the typology of their innovation activities. Here, we analyse the impact of the main characteristics of the sector’s firms on their decisions to invest in each of three types of innovation activity: namely internal R&D; external R&D; and, the acquisition of advanced machinery, equipment or software. In conducting this analysis, we take the potential persistence of innovation activities into account. We also examine the role that different innovation objectives have on firms’ investment decisions. Given that engagement in a specific type of innovation may result from decisions that are not taken independently of each other, we analyse whether there is any complementarity between the three innovation activities. In carrying out the empirical analysis, we draw on data for private energy firms included in the Technological Innovation Panel (PITEC) for Spanish firms for the period 2004-2013. We use panel triprobit models to examine potential complementarity.
    Keywords: Energy, R&D, innovation, regulation, complementarity
    JEL: L94 Q40 O32
    Date: 2016
  3. By: Stefano Bianchini (BETA, University of Strasbourg); Gabriele Pellegrino (École Polytechnique Fédérale de Lausanne & IEB)
    Abstract: This paper examines the effect of persistence in product and process innovations on the employment dynamics of a representative sample of Spanish manufacturing firms observed over more than 20 years. We build on a conceptual framework that links innovation persistence, employment growth and the persistence of this growth in the long-run. Using dynamic panel GMM and survival analysis techniques, we find that persistence in product innovation affects both employment growth and the sustainability of job creation over time significantly, whilst persistence in process innovation does not play any relevant role. The evidence we provide supports the notion that product innovation is more effective in spurring sustained employment growth when carried out systematically.
    Keywords: Firm growth, job creation, innovation, persistence in innovation, path-dependence
    JEL: D22 O31 O32 O33
    Date: 2017
  4. By: Bernhard Dachs (AIT Austrian Institute of Technology GmbH); Martin Hud (Centre for European Economic Research (ZEW)); Christian Koehler (Centre for European Economic Research (ZEW)); Bettina Peters (Centre for European Economic Research (ZEW) - Industrial Economics and International Management Research)
    Abstract: A growing literature investigates how firms’ innovation input reacts to changes in the business cycle. However, so far there is no evidence whether there is cyclicality in the effects of innovation on firm performance as well. In this paper, we investigate the employment effects of innovations over the business cycle. Our analysis employs a large data set of manufacturing firms from 26 European countries over the period from 1998 to 2010. Using the structural model of Harrison et al. (2014), our empirical analysis reveals four important findings: First, the net effect of product innovation on employment growth is pro-cyclical. It turns out to be positive in all business cycle phases except for the recession. Second, product innovators are more resilient to recessions than non-product innovators. Even during recessions they are able to substitute demand losses from old products by demand gains of new products to a substantial degree. As a result their net employment losses are significantly lower in recessions than those of non-product innovators. Third, we only find resilience for SMEs but not for large firms. Fourth, process and organizational innovations displace labor primarily during upturn and downturn periods.
    Keywords: Innovation, employment, business cycle, resilience, Europe
    JEL: O33 J23 C26 D2
    Date: 2017–02
  5. By: Armand, Alex; Mendi, Pedro
    Abstract: Fluctuations in aggregate demand can influence the decision to invest in innovation. This paper focuses on this choice when fluctuations are heterogeneous across productive strata of the economy. To guide the empirical analysis, we model firms’ decision to invest in innovation. In our framework, firms are heterogeneous and demand shocks are exogenous. We show that drops in aggregate expenditure reduce the proportion of firms investing in innovation. We then study investment behaviour in a panel of Spanish innovative manufacturing firms. These firms are all investing in internal R&D in 2004 and are yearly surveyed until 2013. During the Great Recession, firms experienced large contractions in aggregate consumption. The reduction reached 10% of its pre-crisis trend. We proxy heterogeneous fluctuations in demand with entry and exit rates in the productive stratum of each firm. Rates incorporate all firms, including non-innovative firms. Higher exit rates are associated with reductions of 2 to 3% in the share of firms investing in innovation. The drop is larger for smaller firms, which also experience larger decreases in sales. These results are in line with our theoretical predictions. Our estimates are robust to the inclusion of indicators of time-varying credit constraints. For these constraints, we observe a marginal role among innovative firms.
    Keywords: R&D, Innovation, Firm entry, Firm exit, Great Recession.
    JEL: L22 O31 O32
    Date: 2017–02–16
  6. By: Parantap Basu (Durham University, Durham University Business School); Yoseph Getachew (Department of Economics, University of Pretoria, 0028, Pretoria, South Africa)
    Abstract: Using a heterogenous-agent growth model with in-house R&D and incomplete capital markets, we examine the efficiency and distributional e¤ects of alternative public R&D policies that target high-tech and low-tech sectors. We nd that such policies have important implication for efficiency, inequality and social mobility. A regressive public R&D investment nanced by income tax could boost growth and welfare via a positive e¤ect on individual savings and e¤ort. However, it could also discourage them via its effect on the efficiency inequality trade off. The relationship between public R&D spending and welfare is therefore hump shaped admitting an optimal degree of regressivity in public R&D spending. A case for optimal progressive public R&D investment, however, can be made with a properly designed R&D policy that combines consumption tax and investment subsidy policies.
    Date: 2017–02
  7. By: Qing Liu (University of International Business and Economics); Larry D QiuAuthor-Workplace-Name: The University of Hong Kong
    Abstract: Innovation plays a key role in economic growth. In this paper, we investigate the effects of intermediate input tariff reduction on the innovation activities of domestic firms. Input tariff reduction has two opposite effects on the innovation decision of a firm: it may promote innovation because the cost of innovation activities decreases, but it may also result in a decrease in innovation because foreign technologies become cheaper. We use Chinese firm-level data from 1998 to 2007, which features a drastic input tariff cut in 2002 because of China's WTO accession, and find that input tariff cut results in less innovation undertaken by Chinese firms. The findings are obtained using the difference-in-differences technique and are robust to various specifications checks of the model. We also provide a theoretical framework to generate insights to the empirical findings.
    JEL: F13 F15 O14
    Date: 2017–02
  8. By: Broekel, Tom; Boschma, Ron
    Abstract: Firms’ embeddedness in knowledge networks has received much attention in literature. However, little is known about the structure of firms’ knowledge exchange with respect to different types of proximities. Based on survey data of 295 firms in 8 European regions, we show that firms’ knowledge exchange systematically differs in their geographical and cognitive dimensions. We find that firms’ innovation performance is enhanced if the firm primarily links to technologically related as well as technologically similar organizations. Connecting with organizations at different geographical levels yields positive effects as well.
    Keywords: geographical proximity knowledge networks technological relatedness innovation performance
    JEL: D85 O18 O33
    Date: 2017–02
  9. By: Horbach, Jens; Janser, Markus
    Abstract: The environmental sector is supposed to yield a dual benefit: its goods and services are in-tended to tackle environmental challenges and its establishments should create new jobs. However, it is still unclear in empirical terms whether that really is the case. This paper investigates to what extent employment growth in establishments with green products and services is higher compared to other establishments. Furthermore, the main factors determining labor demand in this field are analyzed. We use linked employment and regional data for Germany. The descriptive results show that the environmental sector is characterized by disproportionately high employment growth. The application of a generalized linear mixed model reveals that especially innovation and industry agglomeration foster employment growth in establishments in the environmental sector. Establishments without green products and services show a smaller increase in employment, even if they are also innovative.
    JEL: J21 Q55 R23
    Date: 2016
  10. By: Ferrante, Francesco; Federici, Daniela; Parisi, Valentino
    Abstract: Start-ups founded by university students and graduates play a substantial role in bringing new knowledge to the market and in employment creation; a role that appears to be even more important than the one played by the typical technology transfer activities carried out by universities, i.e. patenting and licensing activities, or spin-offs founded by academic staff. Indeed, robust empirical evidence suggests that entrepreneurs’ education is a good predictor of firms’ performance. Unfortunately, data show that the share of Italian entrepreneurs with tertiary educations is quite small, and this is especially the case of the younger generation. In this paper, we use a population-based approach to explore entrepreneurship among 61,115 graduates, alumni of the 64 Italian universities that belong to the AlmaLaurea consortium, in the second half of 2014, at the time when they completed their academic experience. We detect various levels of engagement and intentions to be involved in entrepreneurship, and we assess which factors appear to weigh more in a positive or negative manner. The bad news is that also our analysis finds that the share of Italian graduates who have started a business after their enrolment at university (1.3%) or who have taken concrete actions to start a business (4.5%) is quite small. The good news is that the number of intentional, i.e. potential highly educated, entrepreneurs among university students is much larger (at least 23%). On the basis of our results, we argue that the provision by universities of entrepreneurial education and training, internships, and ICT skills can be effective tools with which to cultivate entrepreneurial attitudes and skills, thereby fostering entrepreneurship and entrepreneurship among university graduates and enhancing their employability.
    Keywords: Entrepreneurship, university, start up, students, education
    JEL: I23 J21 J24 L26
    Date: 2017–02–20
  11. By: Kim Huynh; Philipp Schmidt-Dengler; Gregor W. Smith; Angelika Welte
    Abstract: The discrete choice to adopt a financial innovation affects a household’s exposure to inflation and transactions costs. We model this adoption decision as being subject to an unobserved cost. Estimating the cost requires a dynamic structural model, to which we apply a conditional choice simulation estimator. A novel feature of our method is that preference parameters are estimated separately, from the Euler equations of a shopping-time model, to aid statistical efficiency. We apply this method to study ATM card adoption in the Bank of Italy’s Survey of Household Income and Wealth. There, the implicit adoption cost is too large to be consistent with standard models of rational choice, even when sorted by age, cohort, education or region.
    Keywords: Bank notes, Econometric and statistical methods, Financial services
    JEL: E41 D14 C35
    Date: 2017
  12. By: Ashish Arora; Sharon Belenzon; Lia Sheer
    Abstract: If scientific knowledge is a public good, why do firms invest in research? This paper revisits this question with new data on patent citations to corporate scientific publications. Using data on 4,736 firms for the period 1980-2006, we explore the relationship between the use of corporate research in invention and the output of corporate scientific publications. Our principal contribution is to document that corporate investment in research is closely related to its use in invention. Specifically, firms that build on their scientific publications in their inventive activity invest more in research than those that are less successful in using their research internally. Consistent with this, research that is internally used is valued more and is more productive.
    JEL: O31 O32
    Date: 2017–02
  13. By: Nir Jaimovich; Henry E. Siu
    Abstract: We study the role of foreign-born workers in the growth of employment in STEM occupations since 1980. Given the importance of employment in these fields for research and innovation, we consider their role in a model featuring endogenous non-routine-biased technical change. We use this model to quantify the impact of high-skilled immigration, and the increasing tendency of such immigrants to work in innovation, on the pace of non-routine-biased technical change, the polarization of employment opportunities, and the evolution of wage inequality since 1980.
    JEL: E0 J0
    Date: 2017–02
  14. By: Böhme, Enrico; Frank, Severin; Kerber, Wolfgang
    Abstract: Patent settlements in the pharmaceutical industry between originator and generic firms have been scrutinized critically by competition authorities for delaying the market entry of generics and being therefore potentially anticompetitive. In this paper we present a model that analyzes the tradeoff between limiting the delaying of generic entry through patent settlements and giving generic firms more incentives for challenging weak patents of the originator firms. We can show that under general assumptions allowing patent settlements with a later market entry of generics than the expected market entry under patent litigation would increase consumer welfare. We introduce a policy parameter for determining the optimal additional period for collusion that would maximize consumer welfare and show that the size of this policy parameter depends on the size of the challenging costs, the intensity of competition, and the duration between the market entries of the first and second generic.
    JEL: L10 L40 O34
    Date: 2016
  15. By: Pekkala Kerr, Sari; Kerr, William; Özden, Çağlar; Parsons, Christopher
    Abstract: This paper reviews recent research regarding high-skilled migration. We adopt a data-driven perspective, bringing together and describing several ongoing research streams that range from the construction of global migration databases, to the legal codification of national policies regarding high-skilled migration, to the analysis of patent data regarding cross-border inventor movements. A common theme throughout this research is the importance of agglomeration economies for explaining high-skilled migration. We highlight some key recent findings and outline major gaps that we hope will be tackled in the near future.
    JEL: F15 F22 J15 J31 J44 L14 L26 O31 O32 O33
    Date: 2017–02–13
  16. By: Benner, Maximilian; Hirth, Jana; Kraatz, Fabian; Ludwig, Katja; Schrade, Jessi
    Abstract: Regional development occurs in the larger context of national economies. Thus, the elaboration of regional economic development strategies cannot be separated from higher-level economic policy which frames and conditions opportunities and risks for regional development. As a Southern European country undergoing a process of profound structural economic reform, Cyprus provides a case for a policy context aiming towards the emergence of a new model of economic growth. Within this context, the Limassol region as one of the country’s major economic centers with a number of comparatively strong industries can serve as an example of how to promote regional development in the framework of national reform priorities such as moving the national economy closer towards a knowledge- and innovation-driven model. The present study analyses current reform priorities on the national and supra-national level, takes stock of the regional economic structure of Limassol district, and presents some preliminary ideas that could be further explored if and when a comprehensive regional economic development strategy for Limassol were to be elaborated.
    Keywords: regional development; regional policy; smart specialisation; smart specialization; clusters; tourism; economic reform; Limassol; Lemesos; Cyprus; European Union
    JEL: L52 L53 L66 L83 L85 L86 L88 O14 O25 O31 O38 O52 Q18 R11 R30 R58
    Date: 2017–02–14
  17. By: Michael Fritsch (School of Economics and Business Administration, Friedrich-Schiller-University Jena); Michael Wyrwich (School of Economics and Business Administration, Friedrich-Schiller-University Jena)
    Abstract: This paper reviews the empirical evidence of persistent levels of regional self-employment and new business formation and the effect this persistence has on development. It is argued that a regional culture of entrepreneurship plays an important role in explaining persistence of entrepreneurship. We discuss possible explanations for the emergence of a culture of entrepreneurship, and how it becomes self-perpetuating over time. Finally, we draw policy implications and identify some promising avenues for further research.
    Keywords: Entrepreneurship, economic development, entrepreneurship culture, institutions
    JEL: L26 R11 O11
    Date: 2017–02–23
  18. By: Matthew E. Kahn; Daxuan Zhao
    Abstract: Climate change will increase the risk of temperature extremes. Induced innovation could offset some of this threat. This paper explores the demand and supply for climate adaptation innovation in a market economy. Climate change induces this innovation because the rising temperatures increase demand for self protection products and for profit firms respond to these incentives. We then augment the model to introduce climate skeptics. Such skeptics reject the claim that the world is warming and thus do not increasingly demand adaptation products. We study how the economy's rate of adaptation innovation, cross city migration, real estate pricing and the welfare of agents with rational expectations are all affected by the presence of such skeptics.
    JEL: Q54 R21
    Date: 2017–02
  19. By: Azam, Sardor
    Abstract: In this study we analyze the relationship between national cognitive abilities and innovational output using data from 124 countries of the world. By employing cross-country IQ scores traditionally used by psychological literature to represent national intelligence, and Economic Complexity Index as a novel measure of innovation, our study shows that there is a positive connection between them. We use a variety of tests to check the robustness of the nexus. Overall, our findings indicate that more intelligent nations export more sophisticated and diverse products to the world market and thus are more innovative. Therefore, developing countries should consider investing in human capital and related institutions if they are to boost innovative capabilities and move up the technology ladder in producing and exporting sophisticated and varied lines of products. This should bring them greater economic diversity which could be a right lever in mitigating negative external shocks.
    Keywords: IQ; Intelligence; Economic complexity index; Innovation
    JEL: F10 I25 O3
    Date: 2017–01–20
  20. By: Billette de Villemeur, Etienne; Versaevel, Bruno
    Abstract: We draw from documented characteristics of the biopharmaceutical industry to construct a model where two firms can choose to outsource R&D to an external unit, and/or engage in internal R&D, before competing in a final market. We investigate the tension between outsourced and internal operations, the distribution of profits among market participants, and the incentives to coordinate outsourcing activities, or to integrate R&D and production. Consistent with the empirical evidence, we find that: (1) each firm’s internal R&D activity is monotonic in the technology received from the external unit, and the sign of the relationship does not depend on the technology received or generated by the competitor; (2) a measure of direct and indirect technological externalities drives the distribution of industry profits, with lower returns to an external unit involved in research (drug discovery) than in development (clinical trials); (3) upstream entry is stimulated by the long-term perspective for the external unit’s owners to earn a larger share of industry profits by selling out assets to a client firm than by running operations. However, in the case of early-stage research, the delinkage of investment incentives from industry value, and the vulnerability of investors’ returns to negative shocks, both suggest the abandonment of projects with economic and medical value as a likely consequence of R&D outsourcing.
    Keywords: research; development; biotechnology; pharmaceuticals; externalities
    JEL: C72 L13 O31
    Date: 2017–01
  21. By: Grillitsch, Markus (Department of Human Geography & CIRCLE)
    Abstract: Structural change features prominently in public policy and scientific debates. While a large body of work is concerned with barriers to structural change, this paper focusses on the interplay between structure and agency by focussing on the transformation capacity of innovative entrepreneurs. Transformation capacity is defined as the ability to combine knowledge and resources across different social structures and stimulate institutional change. The paper discusses why and to what extent transformation capacity rests on three key mechanisms: multiple positions, positional mobility, and networks across social structures. The paper elaborates on potential unintended consequences and pre-conditions for transformation capacity.
    Keywords: innovation systems; entrepreneurship; radical innovation; structural change; system innovation; institutions
    JEL: L16 O30 R10
    Date: 2017–02–17
  22. By: Sasso, Simone (Maastricht University); Ritzen, Jo (IZA and Maastricht University)
    Abstract: We focus on human capital measured by education outcomes (skills) and establish the relationship between human capital, R&D investments, and productivity across 12 OECD economies and 17 manufacturing and service industries. Much of the recent literature has relied on school attainment rather than on skills. By making use of data on adult cognitive skills from the Programme for the International Assessment of Adult Competences (PIAAC), we compute a measure of sectoral human capital defined as the average cognitive skills in the workforce of each country-sector combination. Our results show a strong positive relationship between those cognitive skills and the labour productivity in a country-sector combination. The part of the cross-country cross-sector variation in labour productivity that can be explained by human capital is remarkably large when it is measured by the average sectoral skills whereas it appears statistically insignificant in all our specifications when it is measured by the mere sectoral average school attainment. Our results corroborate the positive link between R&D investments and labour productivity, finding elasticities similar to those of previous studies. This evidence calls for a focus on educational outcomes (rather than on mere school attainment) and it suggests that using a measure of average sectoral cognitive skills can represent a major step forward in any kind of future sectoral growth accounting exercise.
    Keywords: sectoral cognitive skills, productivity, R&D, human capital, knowledge stock
    JEL: I21 J24 O47
    Date: 2016–12
  23. By: Carlo Ciccarelli (University of Rome Tor Vergata, Department of Economics and Finance); Alessandro Nuvolari (Sant’Anna School of Advanced Studies, Institute of Economics)
    Abstract: The locomotive industry was one of the relatively sophisticated “high-tech” sectors in which Italy, a latecomer country, was successful before 1913. Using technical data on the performance of different vintages of locomotives, we construct a new industry-level index of technical change. We also study the impact of different policy instruments (import duties, non-tariff trade barriers and other discretionary interventions) in shaping the development of the industry. Our reassessment reveals the sound technological performance of Italian locomotives; the successful growth of this industry; and the critical role played by non-tariff barriers in its development.
    Keywords: technical progress, locomotive industry, non-tariff barriers, Italy, 19th century
    JEL: N73 O25
    Date: 2016–12

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