nep-ino New Economics Papers
on Innovation
Issue of 2018‒01‒15
seventeen papers chosen by
Uwe Cantner
University of Jena

  1. Business Dynamic Statistics of Innovative Firms By Nathan Goldschlagy; Elisabeth Perlmanz
  2. The organizational design of high-tech startups and product innovation By Grimpe, Christoph; Murmann, Martin; Sofka, Wolfgang
  3. Innovation, Reallocation, and Growth By Acemoglu, Daron; Akcigit, Ufuk; Alp, Harun; Bloom, Nicholas; Kerr, William R.
  4. Asymmetric Innovation Agreements under Environmental Regulation By Naoto Aoyama; Emilson C.D. Silva
  5. Religious Tolerance as Engine of Innovation By Cinnirella, Francesco; Streb, Jochen
  6. Stock Market Overvaluation, Moon Shots, and Corporate Innovation By Ming Dong; David Hirshleifer; Siew Hong Teoh
  7. Innovation, Finance, and Economic Growth : an agent based approach By Giorgio Ffagiolo; Daniele Giachini; Andrea Roventini
  8. Knowledge spillovers and patent citations: trends in geographic localization, 1976-2015 By Hyuk-Soo Kwon; Jihong Lee; Sokbae Lee; Ryungha Oh
  9. Banking Crises and Investments in Innovation By Oana Peia
  10. How Does Firm Survival Differ between Business Takeovers and New Venture Start-ups? By Xi, Guoqian; Block, Jörn; Lasch, Frank; Robert, Frank; Thurik, Roy
  11. Internationalisation of R&D: A Review of Drivers, Impacts, and new Lines of Research By Dachs, Bernhard
  12. Demand-led growth with endogenous innovation By Mauro Caminati; Serena Sordi
  13. Modern Public Enterprises: Organisational Innovation and Productivity By Caroline Stiel
  14. Knowledge Spillovers and Learning in the Workplace: Evidence from the U.S. Patent Office By Michael D. Frakes; Melissa F. Wasserman
  15. The Recurrence of Long Cycles: Theories, Stylized Facts and Figures By Lefteris Tsoulfidis; Aris Papageorgiou
  16. Older and Slower: The Startup Deficit's Lasting Effects on Aggregate Productivity Growth By Robert Dent; David Berger; Benjamin Pugsley; Titan Alon
  17. Productivity and Pay: Is the link broken? By Anna M. Stansbury; Lawrence H. Summers

  1. By: Nathan Goldschlagy; Elisabeth Perlmanz
    Abstract: A key driver of economic growth is the reallocation of resources from low to high productivity activities. Innovation plays an important role in this regard by introducing new products, services, and business methods that ultimately lead to increased productivity and rising living standards. Traditional measures of innovation, particularly those based on aggregate inputs, are increasingly unable to capture the breadth and depth of innovation in modern economies. In this paper, we describe an effort at the US Census Bureau, the Business Dynamics Statistics of Innovative Firms (BDS-IF) project, which aims to address these challenges by extending the Business Dynamics Statistics data to include new measures of innovative activity. The BDS-IF project will produce measures of firm, establishment, and employment flows by firm age, firm size, and industry for the subset of firms engaged in activities related to innovation. These activities include patenting and trademarking, the employment of STEM workers, and R&D expenditures. The exibility of the underlying data infrastructure allows this measurement agenda to be extended to include copyright activity, management practices, and high growth firms.
    Keywords: Firm dynamics, innovation, Longitudinal Business Database, Business Dynamics Statistics
    Date: 2017–01
  2. By: Grimpe, Christoph; Murmann, Martin (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Sofka, Wolfgang
    Abstract: "We investigate whether appointing a middle management level affects startups' innovation performance. Additional hierarchical levels are often suspected to restrict innovative activities. However, founders' capacities for information processing and resource allocation are usually strongly limited while, at the same time, R&D decisions are among the most consequential choices of startups. We argue that middle management is positively related to introducing product innovations because it improves the success rates from recombining existing knowledge as well as managing R&D personnel. In addition, we suggest that the effectiveness of these mechanisms depends on the riskiness of a startup's business opportunity. Based on a sample of German high-tech startups, we find support for our conjectures." (Author's abstract, IAB-Doku) ((en))
    JEL: L26 M13 M12 M51 L22 L23 J21
  3. By: Acemoglu, Daron; Akcigit, Ufuk; Alp, Harun; Bloom, Nicholas; Kerr, William R.
    Abstract: We build a model of firm-level innovation, productivity growth and reallocation featuring endogenous entry and exit. A new and central economic force is the selection between high- and low-type firms, which differ in terms of their innovative capacity. We estimate the parameters of the model using US Census micro data on firm-level output, R&D and patenting. The model provides a good fit to the dynamics of firm entry and exit, output and R&D. Taxing the continued operation of incumbents can lead to sizable gains (of the order of 1.4% improvement in welfare) by encouraging exit of less productive firms and freeing up skilled labor to be used for R&D by high-type incumbents. Subsidies to the R&D of incumbents do not achieve this objective because they encourage the survival and expansion of low-type firms.
    Keywords: Entry; growth; industrial policy; Innovation; R&D; reallocation; selection
    JEL: E2 L1 O31 O32 O33
    Date: 2017–11
  4. By: Naoto Aoyama; Emilson C.D. Silva
    Abstract: In a domestic market, a duopoly produces a homogeneous final good, pollution, pollution abatement and R&D. One of the firms (foreign) has superior technology. The government regulates the duopoly by levying a pollution tax to maximize domestic welfare. We consider the potential implementation of three innovation agreements: cooperative research joint venture (RJV), non-cooperative RJV and licensing. In the cooperative (non-cooperative) RJV, the firms (do not) internalize R&D spillovers. We show that, for the domestic firm, the cooperative RJV dominates and licensing is the least desirable alternative. Although licensing is dominant for the foreign firm, it is not implementable. Both RJVs are implementable. While the non-cooperative RJV is more likely the greater the degrees of asymmetry (in terms of efficiency and R&D spillover rates) between the firms, the cooperative RJV is more likely the lower the degrees of asymmetry. Implementation of both types of RJVs improve the competitiveness of the domestic firm and welfare. A subsidy policy that induces the foreign firm to accept a feasible cooperative RJV when it strictly prefers a feasible non-cooperative RJV is always welfare improving.
    Keywords: environmental regulation, innovation, research joint ventures, licensing
    JEL: D43 D62 F23 L13 L24 L51 Q55 Q58
    Date: 2018
  5. By: Cinnirella, Francesco; Streb, Jochen
    Abstract: We argue that, for a given level of scientific knowledge, tolerance and diversity are conducive to technological creativity and innovation. In particular, we show that variations in innovation within Prussia during the second industrial revolution can be ascribed to differences in religious tolerance that developed in continental Europe from the Peace of Westphalia onwards. By matching a unique historical dataset about religious tolerance in 1,278 Prussian cities with valuable patents for the period 1877-1890, we show that higher levels of religious tolerance are strongly positively associated with innovation during the second industrial revolution. Religious tolerance is measured through population's religious diversity, diversity of churches, and diversity of preachers and religious teachers, respectively. Endogeneity issues are addressed using local variation across cities, within counties. Estimates using preindustrial levels of religious tolerance address issues of reverse causality. As for the channels of transmission, we find significant complementarity between religious tolerance and human capital. Furthermore, we find that cities with higher levels of religious tolerance attracted a larger share of migrants. Finally, higher levels of religious diversity in the population translated into higher levels of religious diversity in the workforce by industrial sector. This result suggests that religious diversity did not generate labor market segmentation by denomination but might have fostered interaction of different denominations.
    Keywords: diversity; Innovation; openness; Patenting Activity; Pluralism; Tolerance
    JEL: N13 N33 O14 O31 Z12
    Date: 2017–11
  6. By: Ming Dong; David Hirshleifer; Siew Hong Teoh
    Abstract: We test how market overvaluation affects corporate innovative activities and success. Estimated stock overvaluation is very strongly associated with R&D spending, innovative output, and measures of innovative novelty, originality, and scope. R&D is much more sensitive than capital investment to overvaluation. The effects of misvaluation on R&D come more from a non-equity channel than via equity issuance. The sensitivity of R&D and innovative output to misvaluation is greater among growth, overvalued, and high turnover firms. This evidence suggests that market overvaluation may have social value by increasing innovative output and by encouraging firm to engage in ‘moon shots.’
    JEL: D22 D23 G14 G3 G31 G32 O32
    Date: 2017–12
  7. By: Giorgio Ffagiolo (Scuola Superiore Sant'Anna Pisa Italy); Daniele Giachini (Scuola Superiore Sant'Anna Pisa Italy); Andrea Roventini (Scuola Superiore Sant'Anna Pisa Italy also OFCE Sciences Po Paris)
    Abstract: This paper extends the endogenous-growth agent-based model in Fagiolo and Dosi (2003) to study the finance growthnexus. We explore industries where firms produce a homogeneous good using existing technologies, perform R&D activities to introduce new techniques, and imitate the most productive practices. Unlike the original model, we assume that both exploration and imitation require resources provided by banks, which pool agent savings and finance new projects via loans. We find that banking activity has a positive impact on growth. However,excessive financialization can hamper growth. In- deed, we find a significant and robust inverted-U shaped relation between financial depth and growth. Overall, our results stress the fundamental (and still poorly understood) role played by innovation in the finance-growth nexus.
    Keywords: Agent based models, Innovation, Exploration vs Exploitation, Endogenous Growth, Banking Sector, Finance Growth Nexus
    JEL: C63 G21 O30 O21
    Date: 2017–11–27
  8. By: Hyuk-Soo Kwon (Institute for Fiscal Studies); Jihong Lee (Institute for Fiscal Studies); Sokbae Lee (Institute for Fiscal Studies and Columbia University and IFS); Ryungha Oh (Institute for Fiscal Studies)
    Abstract: This paper examines the trends in geographic localization of knowledge spillovers via patent citations, considering US patents from the period of 1976-2015. Despite accelerating globalization and widespread perception of the "death of distance," our multi-cohort "matched-sample" study reveals signi cant and growing localization effects of knowledge spillovers at both intra- and international levels after the 1980s. We also develop a novel network index based on the notion of "farness," which an instrumental variable estimation shows to be a signifi cant and sizable determinant of the observed trends at the state-sector level.
    Keywords: Innovation, knowledge spillovers, patent citation, agglomeration, network index, farness
    JEL: C36 C81 O33 O34 O51
    Date: 2017–12–06
  9. By: Oana Peia
    Abstract: This paper proposes a new channel to explain the medium- to long-term effects of banking crises on the real economy. It embeds a banking sector prone to runs in a stylized growth model to show that episodes of bank distress affect not only the volume, but also the composition of firm investment, by disproportionally decreasing investments in innovation. Thishypothesis is confirmed empirically employing industry-level data on R&D spending around 13 recent banking crises episodes. Using difference-in-difference identification strategies, I show that industries that depend more on external finance, in more bank-based economies, invest disproportionally less in R&D following systemic banking crises. These industries also have a lower share of R&D spending in total investment, suggesting a shift in the composition of investment that is specific to recessions following banking crises and not other business cycle recessions.
    Keywords: Banking crises; R&D investment; Financial dependence; Global games
    JEL: G01 G21 E22
    Date: 2017–12
  10. By: Xi, Guoqian (University of Trier); Block, Jörn (University of Trier); Lasch, Frank (Montpellier Business School); Robert, Frank (Montpellier Business School); Thurik, Roy (Erasmus University Rotterdam)
    Abstract: Focusing on entrepreneurship entry modes, we investigate two research questions regarding firm survival: how does the survival probability differ between business takeovers and new venture start-ups? And how do the determinants of survival differ between the two entry modes? Using a large French dataset, we find that business takeovers have a higher survival chance than new venture start-ups. Yet, the differences between two entry modes partially disappear when controlling for differences in founder and firm characteristics. Moreover, we identify differences in the determinants of survival between the two groups, highlighting the distinction between the two forms of entrepreneurship.
    Keywords: new venture start-up, business takeover, firm survival
    JEL: L26 M13
    Date: 2017–11
  11. By: Dachs, Bernhard
    Abstract: This paper reviews the growing literature on the internationalisation of R&D in the business sector. By internationalisation of R&D, this paper means the fact that firms conduct research and development at locations outside their home countries. The survey focuses on three issues: first, the drivers of the process at the country, the sectoral and the firm level – why firms go abroad with R&D activities. Second, evidence on the effects of the internationalisation of R&D on the host and home countries of multinational firms. So far, there is a consensus in the literature that R&D internationalisation benefits the host countries. Third, the paper discusses some new lines of research on R&D internationalisation related to the role of indirect funding for R&D, R&D internationalisation in services and multinationals from emerging economies.
    Keywords: Internationalisation, R&D, innovation, foreign-owned firms, outsourcing
    JEL: F23 O31
    Date: 2017–12
  12. By: Mauro Caminati; Serena Sordi
    Abstract: This paper contributes to the recent macro-dynamics literature on demand-led growth, that borrows insights from the idea expressed long ago by J. Hicks (1950) that Harrodian instability may be tamed by a source of autonomous expenditure in the economy. Contrary to the other contributions in this literature, autonomous expenditure is not exogenous, but is driven by a flow of profit-seeking R&D and innovation expenditures, that raise labour productivity through time. If the state of distribution, hence the wage share, is exogenously fixed and constant, the model gives rise to a macro-dynamics in a two dimensional state space, that may converge to, or give rise to limit cycles around, an endogenous growth path. An exogenous rise of the profit share exerts negative e¤ects on long-run growth and employment, showing that growth is wage led.
    Keywords: wage-led growth; endogenous autonomous expenditure; labour-saving technological progress: limit cycles
    JEL: E11 E12 O41
    Date: 2017–11
  13. By: Caroline Stiel
    Abstract: In advanced economies, state-owned enterprises play an important role in sectors of general interest such as energy and water supply. The conditions under which they operate have changed fundamentally since 1998, with new strategies required for firms to preserve market shares in the face of liberalisation and technological innovation. This paper investigates the productivity effect of three strategies in new public management: corporatisation, outsourcing, and partial privatisation. Firm-level productivity is estimated from production data using a control function approach. As most of the firms are typically multiproduct firms, we suggest a method for modelling differences in the product mix and to account for heterogeneous production environments. Using a newly constructed and unique dataset from the German Federal Statistical Office, we find that outsourcing and corporatisation positively impact productivity, while partial privatisation does not increase productivity.
    Keywords: State Ownership, Productivity, Firm Organisation, Structural Production Function
    JEL: L32 D24 L24 L97
    Date: 2017
  14. By: Michael D. Frakes; Melissa F. Wasserman
    Abstract: Using application-level data from the Patent Office from 2001 to 2012, merged with personnel data on patent examiners, we explore the extent to which the key decision of examiners—whether to allow a patent—is shaped by the granting styles of her surrounding peers. Taking a number of methodological approaches to dealing with the common obstacles facing peer-effects investigations, we document strong evidence of peer influence. For instance, in the face of a one standard-deviation increase in the grant rate of her peer group, an examiner in her first two years at the Patent Office will experience a 0.15 standard-deviation increase in her own grant rate. Moreover, we document a number of markers suggesting that such influences arise, at least in part, through knowledge spillovers among examiners, as distinct from peer-pressure mechanisms. We even find evidence that some amount of these spillovers may reflect knowledge flows regarding specific pieces of prior art that bear on the patentability of the applications in question, as opposed to just knowledge flows regarding general examination styles. Finally, we find evidence suggesting that the magnitude of these peer examiner influences are just as strong, or stronger, than the influence of the examination styles of supervisors.
    JEL: J01 M50 O30
    Date: 2017–12
  15. By: Lefteris Tsoulfidis (Department of Economics, University of Macedonia); Aris Papageorgiou (Department of Economics, University of Macedonia)
    Abstract: Basic innovations and their diffusion, the expansion or contraction of the level of economic activity and the volume of international trade, rising sovereign debts and their defaults, conflicts and the outbreak of wars, are some of the major phenomena appearing during the downswing or upswing phases of long cycles. In this article, we examine the extent to which these phenomena constitute stylized facts of the different phases of long cycles which recur quite regularly in the turbulent economic history of capitalism. The main argument of this paper is that the evolution of long cycles is a result of the long-run movement of profitability. During the downswing of a long cycle, falling profitability induces innovation investment and the associated with it 'creative destruction' of the capital stock that eventually set the stage for the upswing phase of a new long cycle.
    Keywords: Long Cycles, Innovations, Profit rate.
    JEL: B14 B24 E11 E32
    Date: 2017–09
  16. By: Robert Dent (University of Virginia); David Berger (Northwestern University); Benjamin Pugsley (Federal Reserve Bank of NY); Titan Alon
    Abstract: The more than thirty-year decline in the rate of new employer business creation, and with it the significant shift in the firm age distribution of U.S. employers have both slowed U.S. labor productivity growth. This gradually accumulating drag on productivity growth was obscured by the surge in TFP in the late 1990s and early 2000s (see Fernald 2014). Earlier work by Baily et al. (1992) and Foster et al. (2006) among others has shown the crucial role of reallocation among establishments, primarily from entry and exit, in explaining aggregate productivity growth within the manufacturing and retail trade sectors. In this paper, we use administrative Census data with near universal coverage of the non farm private sector to assess the effects on aggregate productivity from the direct effects of the decline in the business entry rate and its indirect effect on the age distribution. We follow the methodology of Haltiwanger et al. (2016) and merge the Census Longitudinal Business Database (LBD) with data on annual sales from IRS records in the Census Business Register to construct a revenue-enhanced LBD with annual firm level measures of real sales per worker. Using these measures as rough proxies for labor productivity within narrow NAICS industries, we quantify how the entire distribution of labor productivity evolves by firm age as well as other firm characteristics by extending the dynamic Olley-Pakes decomposition in Melitz and Polanec (2015). Looking across the entire private-sector economy, we have three main findings. First, we document that the age-profile of labor productivity growth of firms between the ages of 1 and 19 is downward sloping and convex. Productivity growth is highest among young firms and declines quickly with firm age. Since startups have higher productivity growth rates, a decline in the startup rate lowers aggregate productivity growth. Second, we document that this age profile of firms aged 1-19 and the pattern of selection is stable across our sample. This means that the slow down in aggregate productivity growth has not come from changes in the age profile of productivity growth for these age cohorts. Third, the contribution of mature firms (age 20+) to aggregate productivity growth has declined significantly since the mid-2000 and the source of this decline has been a slowdown in allocative efficiency (the most productivity mature firms have not gained market share relative to less productive firms). We use these cross sectional results to calibrate an equilibrium growth model with heterogeneous firms and to perform simple counterfactuals. The model allows us to estimate the aggregate consequences of the declines in entry for aggregate productivity in the time series. Using the model we quantify the total effect of the decades long startup deficit on aggregate productivity growth. Simple counterfactuals suggest that the decline in the startup rate can explain a significant fraction, though not all, of the aggregate productivity growth slowdown.
    Date: 2017
  17. By: Anna M. Stansbury; Lawrence H. Summers
    Abstract: Since 1973 median compensation has diverged starkly from average labor productivity. Since 2000, average compensation has also begun to diverge from labor productivity. These divergences lead to the question: to what extent does productivity growth translate into compensation growth for typical American workers? We investigate this, regressing median, average and production/nonsupervisory compensation growth on productivity growth in various specifications. We find substantial evidence of linkage between productivity and compensation: over 1973-2016, one percentage point higher productivity growth has been associated with 0.7 to 1 percentage points higher median and average compensation growth and with 0.4 to 0.7 percentage points higher production/nonsupervisory compensation growth. These results suggest that other factors orthogonal to productivity have been acting to suppress typical compensation even as productivity growth has been acting to raise it. Several theories of the cause of the productivity-compensation divergence focus on technological progress. These theories have a testable implication: periods of higher productivity growth should be associated with periods of faster productivity-pay divergence. We do not find substantial evidence of co-movement between productivity growth and the labor share or mean/median compensation ratio. This tends not to provide strong support for pure technology-based theories of the productivity-compensation divergence.
    JEL: E24 J24 J3
    Date: 2017–12

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