nep-ino New Economics Papers
on Innovation
Issue of 2018‒07‒30
twenty-one papers chosen by
Uwe Cantner
University of Jena

  1. The Principle of Relatedness By César Hidalgo; Pierre-Alexandre Balland; Ron Boschma; Mercedes Delgado; Maryann Feldma; Koen Frenken; Edward Glaeser; Canfei He; Dieter F. Kogler; Andrea Morrison; Frank Neffke; David Rigby; Scott Stern; Siqi Zheng; Shengjun Zhu
  2. The Regional Innovation System in China: Regional comparison of technology, venture financing, and human capital focusing on Shenzhen By MOTOHASHI Kazuyuki
  3. Europe's 2020 - innovation and creative capability of the Baltic Sea Region By Wedemeier, Jan; Kruse, Mirko
  4. Technology Adoption in a Declining Market By Hagspiel, V.; Huisman, Kuno; Kort, Peter; Lavrutich, Maria; Nunes, Claudia; Pimentel, Rita
  5. Plant Breeders' Rights, Patents, and Incentives to Innovate By Adrien Hervouet; Corinne Langinier
  6. The conflict between U.S. patent protection and technological innovation By Wade M. Chumney; David Wasieleski; E Günter Schumacher
  7. Secrets for sale? Innovation and the nature of knowledge in an early industrial district: the Potteries, 1750-1851 By Lane, Joseph
  8. Erosion, Time Compression, and Self-Displacement of Leaders in Hypercompetitive Environments By Pacheco-de-Almeida, Gonçalo
  9. Complex Economic Activities Concentrate in Large Cities By Pierre-Alexandre Balland; Cristian Jara-Figueroa; Sergio Petralia; Mathieu Steijn; David Rigby; César Hidalgo
  10. Innovating in less developed regions: what drives patenting in the lagging regions of Europe and North America By Rodríguez-Pose, Andrés; Wilkie, Callum
  11. Highly skilled migration and the internationalization of knowledge By Claudia Noumedem Temgoua
  12. Financialisation and innovation in emerging economics By Halima Jibril; Annina Kaltenbrunner; Effi Kesidou
  13. Modeling insurgent-incumbent dynamics: Vector autoregressions,multivariate Markov chains, and the nature of technological competition By Bruno Damásio; Sandro Mendonça
  14. Technology Sourcing in New Product Development Projects: When and how to use external resources? By KANI Masayo; MOTOHASHI Kazuyuki
  15. Strategies of gain and strategies of waste: What determines the success of development intervention? By Andrés Rodríguez-Pose; Callum Wilkie
  16. The effect of women directors on innovation activity and performance of corporate firms: Evidence from China By Töpfer, Marina
  17. A research note on entrepreneurs' financial commitment and crowdfunding success By Löher, Jonas; Schneck, Stefan; Werner, Arndt
  18. Strategic Declaration of Standard Essential Patents By AOKI Reiko; ARAI Yasuhiro
  19. Strategic alliances between banks and fintechs for digital innovation: Motives to collaborate and types of interaction By Klus, Milan F.; Lohwasser, Todor S.; Holotiuk, Friedrich; Moormann, Jürgen
  20. Getting inspiration or creating inspiration? The role of knowledge structures in idea generation By Juliette Brun; Pascal Le Masson; Benoit Weil
  21. The role of industry, occupation, and location specific knowledge in the survival of new firms By Cristian Jara-Figueroa; Bogang Jun; Edward Glaeser; Cesar Hidalgo

  1. By: César Hidalgo; Pierre-Alexandre Balland; Ron Boschma; Mercedes Delgado; Maryann Feldma; Koen Frenken; Edward Glaeser; Canfei He; Dieter F. Kogler; Andrea Morrison; Frank Neffke; David Rigby; Scott Stern; Siqi Zheng; Shengjun Zhu
    Abstract: The idea that skills, technology, and knowledge, are spatially concentrated, has a long academic tradition. Yet, only recently this hypothesis has been empirically formalized and corroborated at multiple spatial scales, for different economic activities, and for a diversity of institutional regimes. The new synthesis is an empirical principle describing the probability that a region enters - or exits - an economic activity as a function of the number of related activities pre- sent in that location. In this paper we summarize some of the recent empirical evidence that has generalized the principle of relatedness to a fact describing the entry and exit of products, industries, occupations, and technologies, at the national, regional, and metropolitan scales. We conclude by describing some of the policy implications and future avenues of research implied by this robust empirical principle.
    Keywords: economic complexity, relatedness, economic geography
    Date: 2018–07
  2. By: MOTOHASHI Kazuyuki
    Abstract: Shenzhen has become a hot spot of innovation in China. In this paper, we characterize Shenzhen's innovation by comparing it with that of Beijing and Shanghai using patent and venture investment data. First, the role of universities and public research institutions is small in Shenzhen's innovation system as compared to Beijing and Shanghai. In contrast, private high-tech firms, such as Huawei, ZTE, and Tencent, are leading the innovation scene in Shenzhen. Second, we find that high-tech start-ups are geographically concentrated in the Nanshan district, particularly Yuehai Jiedao, where national-level high-tech zones are located. Recently, the number of start-ups has been increasing, and local, big firms, such as ZTE, are providing the human resources for such start-up firms. Third, inventor-disambiguated information based on patent data allows us to look at interorganizational talent movements. We find that such movements tend to occur within short distances, such as within the same district (e.g., Nanshan district). To sum up, Shenzhen has truly become a hot spot of high-tech entrepreneurship and innovation, but the dynamics are very much regionally bound. Therefore, it is important to become a local player in order to take advantage of innovation movements in Shenzhen by means of minority investment by corporate venture capital into local start-up firms.
    Date: 2018–07
  3. By: Wedemeier, Jan; Kruse, Mirko
    Abstract: The ongoing structural change towards the service and knowledge societies, innovations, and the increasing integration of markets will have considerable influence on the European Union, particularly on the Eastern members of EU. In March 2010, the European Commission released the Europe-2020 strategy, which shall push the EU to be the smartest and most competitive region in the world. Among the European Union members, the Baltic Sea countries are effective in bringing up innovative cluster solutions, cooperation between science and business. Innovations are crucial for further economic development and prosperity. However, the innovation headline indicators are ambitiously defined targets of the Europe-2020 strategy. The paper at hand analyses and highlights the innovation and creative capability within the Europe 2020 strategy framework.
    Keywords: innovation,Baltic Sea Region,Europe 2020,creative sector
    JEL: O3 R11 R12 Z1
    Date: 2018
  4. By: Hagspiel, V. (Tilburg University, Center For Economic Research); Huisman, Kuno (Tilburg University, Center For Economic Research); Kort, Peter (Tilburg University, Center For Economic Research); Lavrutich, Maria (Tilburg University, Center For Economic Research); Nunes, Claudia; Pimentel, Rita
    Abstract: Rapid technological developments are inducing the shift in consumer demand from existing products towards new alternatives. When operating in a declining market, the profitability of incumbent firms is largely dependent on the ability to correctly time the introduction of product innovations. This paper contributes to the existing literature on technology adoption by considering the optimal innovation investment in the context of the declining market. We study the problem of a firm that has an option to undertake the innovation investment and thereby either to add a new product to its portfolio (add strategy) or to replace the established product by the new one (replace strategy). We are able to quantify the value of the option to adopt a new technology, as well as the optimal timing to exercise it. We find that it can be optimal for the firm to innovate not only because of the significant technological improvement, but also due to demand saturation. In the latter case profits of the established product may become so low that the firm will adopt a new technology even if the newest available innovation has not improved for some time. This way, our approach allows to explicitly account for the effect of a decline in the established market on technology adoption. Furthermore, we find that under certain conditions an inaction region exists, in which the firm does not innovate, while for lower technology levels it applies the add strategy and for higher technology levels the replace strategy.
    Keywords: Technology adoption; Declining demand; Product innovation; Dynamic programming
    JEL: C61 D81 O33
    Date: 2018
  5. By: Adrien Hervouet (GAEL - Laboratoire d'Economie Appliquée de Grenoble - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - INRA - Institut National de la Recherche Agronomique - CNRS - Centre National de la Recherche Scientifique - UGA - Université Grenoble Alpes); Corinne Langinier (University of Alberta [Edmonton])
    Abstract: Both patents and Plant Breeders' Rights (PBRs) can protect plant innovations. Unlike patents, PBRs allow farmers to save part of their harvest to replant. We analyze the impact of this exemption on prices and innovation in a monopoly setting. In a PBR regime, a monopolist might let farmers self-produce, and he over-or under-invests compared to socially optimal investments. Under a PBR and patent regime, large (small) innovations are more likely to be patented (protected with PBRs), but self-production is not completely prevented, private investments are often socially optimal, and incentives to innovate are boosted. However, overall effects on welfare are ambiguous.
    Keywords: seed saving,plant breeders' rights,durable good,innovation,patents
    Date: 2018
  6. By: Wade M. Chumney (CSUN - California State University, Northridge); David Wasieleski (ICN Business School, Duquesne University [Pittsburgh]); E Günter Schumacher (ICN Business School, CEREFIGE - Centre Européen de Recherche en Economie Financière et Gestion des Entreprises - UL - Université de Lorraine)
    Abstract: Criticisms of patent laws for technological innovations in the United States reveal a multifaceted milieu of problems centered around the protection of short-term economic gain and individual property rights. In this article, we consider this a conflict between current patent laws and the innovation capabilities of organizations. We propose a solution that enables the company to assure its long-term survival in the face of these restrictions. This presumes that the firm will at least maintain its innovation capacities while preserving the company's ethical values and those of its social environment. We offer a theoretical model that is designed to help managers and policymakers reorient their governance strategies for managing the innovation process, using the "ethics of responsibility," which establishes the link to individual moral values at the beginning of a governance process as well as the consequences of a decision. Our integrated causal model of ethical innovation for patents is presented and implications for global organizations and possible solutions for patent law process failure are offered.
    Keywords: U.S.,technological innovation,patent protection,conflict
    Date: 2017
  7. By: Lane, Joseph
    Abstract: This paper investigates innovation and knowledge in the North Staffordshire Potteries during the eighteenth and early nineteenth centuries. It evaluates new empirical evidence of formal and informal patterns of knowledge creation and dissemination in order to highlight tensions between forms of open knowledge sharing and the appropriation of returns to innovative activity. By presenting new patent data it shows that formal protection was not a widespread strategy in the industry. It uses patent specifications to determine what specific types of knowledge were, and could be, patented in the district, and by whom. A range of sources are used to demonstrate evidence of innovation and knowledge appropriation outside of the patent system. The paper identifies distinct types of knowledge in the industry and shows how differences in these led to a range of strategies being employed by potters, with the role of secrecy highlighted as a particularly prevalent and effective strategy.
    Keywords: Industrial Revolution; Intellectual Property; Patents; Innovation; Earthenware; Industrial District; Technology; Knowledge
    JEL: D83 L61 N63 N73 N91 O34
    Date: 2018–07
  8. By: Pacheco-de-Almeida, Gonçalo
    Abstract: This article examines how leader firms should respond to the erosion of competitive advantages caused by rapid imitation and innovation in hypercompetitive environments. On the one hand, shorter-lived advantages induce leaders to develop new advantages faster. On the other hand, hypercompetition also erodes the expected returns from new advantages — reducing leaders’ incentives to accelerate investments. Since investing faster also raises costs, this article shows that leaders often prefer to renew competitive advantages more slowly in more hypercompetitive industries — thereby increasing the probability of being displaced by competitors. This phenomenon is dubbed self-displacement. Firms’ decision to self-displace themselves from industry leadership with greater probability is deliberate and rationa l — not a result of leaders’ inability to respond to competitive threats, as previously assumed in the literature. This article also shows that leaders’ rule of thumb in more hypercompetitive environments should be to accelerate the development of advantages with high competitive value but low market value. This study is based on a theoretical model and numerical analysis grounded on stylized empirical facts that govern industry competitive macrodynamics and firm investment microdynamics in most industries. Because the model builds on empirically observable constructs, its theoretical propositions are amenable to large sample testing.
    Keywords: hypercompetition; time compression; sustainable competitive advantage; industry leadership; imitation; innovation
    JEL: M10 M20 M21 O31 O32 O33
    Date: 2017–03–24
  9. By: Pierre-Alexandre Balland; Cristian Jara-Figueroa; Sergio Petralia; Mathieu Steijn; David Rigby; César Hidalgo
    Abstract: Why do some economic activities agglomerate more than others? And, why does the agglomeration of some economic activities continue to increase despite recent developments in communication and transportation technologies? In this paper, we present evidence that complex economic activities concentrate more in large cities. We find this to be true for technologies, scientific publications, industries, and occupations. Using historical patent data, we show that the urban concentration of complex economic activities has been continuously increasing since 1850. These findings suggest that the increasing urban concentration of jobs and innovation might be a consequence of the growing complexity of the economy.
    Keywords: economic complexity, complexity, scaling, occupations, cities, agglomeration
    Date: 2018–07
  10. By: Rodríguez-Pose, Andrés; Wilkie, Callum
    Abstract: Not all economically-disadvantaged – 'less developed' or 'lagging' – regions are the same. They are, however, often bundled together for the purposes of innovation policy design and implementation. This paper attempts to determine whether such bundling is warranted by conducting a regional level investigation for Canada, the United States, on the one hand, and Europe, on the other, to (a) identify the structural and socioeconomic factors that drive patenting in the less developed regions of North America and Europe, respectively; and (b) explore how these factors differ between the two contexts. The empirical analysis, estimated using a mixed-model approach, reveals that, while there are similarities between the drivers of innovation in North America's and Europe's lagging regions, a number of important differences between the two continents prevail. The analysis also indicates that the territorial processes of innovation in North America's and Europe's less developed regions are more similar to those of their more developed counterparts than to one another.
    Keywords: Canada; Europe; Innovation; lagging regions; patenting; R&D; United States
    JEL: O32 O33 R11 R12
    Date: 2018–07
  11. By: Claudia Noumedem Temgoua
    Abstract: This paper investigates the role of Chinese and Indian highly skilled diaspora in the internationalization of knowledge networks, for a sample of OECD destination countries. We mainly focus on two types of knowledge networks: co-inventorship and co-authorship. We jointly exploit country-level data on highly skilled migration and information on co-authorship and co-inventorship from publication and patent data. Based on a gravity model regression analysis, we find that OECD country pairs hosting sizeable portions of the Indian or Chinese highly skilled diasporas tend to collaborate more on publications and patents, after controlling for other migration trends. When extending the analysis to other countries, we find similar results for Vietnam, Pakistan and Iran.
    Keywords: migration, highly skilled, publications, R&D cooperation, diffusion, patent
    JEL: C8 F22 J61 O31 O33
    Date: 2018
  12. By: Halima Jibril; Annina Kaltenbrunner; Effi Kesidou
    Abstract: This article contributes to the literature on the financial constraints of innovation in two ways. First, we examine whether financialisation has transformed the relation between finance and innovation by assessing the association between companies' financial relations, both on the liability side and the asset side of their balance sheets, and intangible assets. Second, this is the first study that examines theoretically and empirically the link between financialisation and innovation in the context of emerging markets using the population of publicly listed companies in Brazil over the period 2011-2016. We find evidence that whilst financial liabilities do not affect investments on intangibles, higher financial assets and financial profits discourage investments on intangibles. Other indicators of financialisation are not significant. Thus, our results support the crowding-out hypothesis that financialisation i.e. companies' increased tendency to hold financial assets and generate revenue from financial income rather than their underlying operations, discourages investments on innovation.
    Keywords: Financialisation, Intangible assets, Innovation-driven growth, Emerging economies
    Date: 2018
  13. By: Bruno Damásio; Sandro Mendonça
    Abstract: The struggle between sail and steam is a long-standing theme in economic history. But this technological competition story has only partly tackled, since most studies have appreciated the rivalry between the two alternative modes of commercial sea carriage in the late 19th century while the early period has remained relatively under-analysed. This paper models the early dynamics between the two capital goods using a vector autoregression approach (VAR) and a Multivariate Markov Chain approach (MMC). We find evidence that the relationship was nonlinear, with a strong indication of complementarities and cross-technology learning effects.
    Keywords: economic history, technological competition, sailing ships, steamships, vector autoregression, multivariate Markov chain
    Date: 2018–07
  14. By: KANI Masayo; MOTOHASHI Kazuyuki
    Abstract: This paper provides empirical analyses to understand the management of external technology sourcing using a novel dataset of new product development (NPD) projects in Japanese firms, focusing on the difference between bilateral and unilateral contract-based alliances. External technology sourcing takes on various forms that can be divided into two categories: bilateral alliances, such as joint research and development (R&D), and unilateral alliances, such as licensing and commissioned R&D. The former style involves the cooperation process of joint R&D with a partner, whereas the latter involves the straightforward process of technology acquisition from a partner. In this paper, the determinants of the sourcing strategy for each contract type are investigated, and we find that a firm is likely to use external technology sourcing in exploratory projects, and that the type of sourcing will differ between large and small firms. Furthermore, a bilateral alliance is likely found to be used for market pull-type projects, while technology push-type ones are more often managed by unilateral alliances.
    Date: 2018–06
  15. By: Andrés Rodríguez-Pose; Callum Wilkie
    Abstract: The development policy landscape has, in recent years, been dominated by four types of interventions: (1) infrastructure expansion and development; (2) the attraction of inward investment; (3) the promotion of innovation and development of human capital; (4) the cultivation of agglomeration and physical co-location. This paper engages with these four broad policy types with a view to, first, assess and comment on the utility of these approaches in different development contexts, and, second, provide an indication of what has worked and what has not worked in the design and implementation of these strategic actions. It relies on a review of a handful of ?strategies of gain' and 'strategies of waste' to ascertain insights into the steps that should be taken to maximise the likelihood that territorial development policies ? irrespective of the development axis towards which they are oriented ? fulfil their potential and contribute to the reduction of the territorial disparities in developed and developing contexts alike. The lessons drawn from this review are four-fold: i) development strategies composed of multiple related and mutually-reinforcing actions and interventions across development areas deliver better results; ii) strategic approaches to the promotion of economic growth that are solidly grounded in robust diagnoses are generally more successful; iii) the awareness of where exactly the territory is situated on the development spectrum is crucial; and iv) the institutional dimension cannot be left un-addressed in the design and implementation of policy interventions. These lessons are supplemented by a general framework relating to how territorial approaches to development should be designed for areas at different points in their development trajectories.
    Keywords: Development, development strategies, institutions, territorial inequality, lagging areas
    Date: 2018–07
  16. By: Töpfer, Marina
    Abstract: This paper elaborates whether women bringing their diversity, cross-cultural awareness and transformational leadership skills to corporate boards offer strategic advantages for firms. In the analysis the effect of women in the board room on innovation activity and corporate firm performance as well as the joint consequences of female directors and innovation activity on the firm's success are examined. The latter may be particularly important in the context of gender diversity as more gender-diverse boards allow for higher levels of creativity and hence innovation. In order to account for endogeneity issues, different model specifications are employed (two-way fixed effects models and linear dynamic panel data models). Unconditional quantile regressions are used in order to go beyond the mean. The analysis is conducted using Chinese firm-level data from 2006-2015. The results suggest positive effects of gender diversity in corporate boards and patenting activities on firm performance. Women directors are found to have statistically significant effects on both input-(positive) and output-oriented (negative) innovation activity.
    Keywords: Women Directors,Innovation Activity,Firm Performance,Gender-diverse Boards,Unconditional Quantile Regression
    JEL: G30 J16
    Date: 2018
  17. By: Löher, Jonas; Schneck, Stefan; Werner, Arndt
    Abstract: Established early stage investors decide to invest in new ventures after evaluating the propensity of success and the risk of failure. Consequently, it is of considerable importance that the new business owners have substantial 'skin in the game' and are thus highly committed to business success. Despite its key role in practice, the entrepreneurs' own financial commitment has not yet been discussed in a crowdfunding context. Applying a signaling approach, our empirical findings show that entrepreneurs with comparatively more ex ante financial commitment in their project achieve significantly higher funding success. Moreover, our results suggest that financial commitment is the single most important variable determining funding success.
    Keywords: equity crowdfunding,crowdinvesting,campaign success,financial commitment,signaling,entrepreneurial finance
    JEL: G11 G19 G21 M13
    Date: 2018
  18. By: AOKI Reiko; ARAI Yasuhiro
    Abstract: We examine how the ex-post assessment of standard essential patents (SEPs) affects the patent holder's strategic incentive to declare SEPs. While declaration guarantees inclusion in the standard, it requires commitment to license under fair, reasonable, and non-discriminatory (FRAND) terms. We consider two forms of essentiality assessment: (i) by an independent organization and (ii) by the courts during a patent dispute or a challenge initiated by a standard implementer. Assessment by an independent organization can eliminate declared patents with low essentiality. Assessment through a dispute can decrease the number of both declared and non-declared (i.e., non-FRAND-encumbered) patents and these different trade-offs affect the rights holder's strategic declaration incentive. We obtain the following results. First, there is less declaration when there is ex-post assessment of either type compared with no assessment. Second, there is less declaration with assessment by an independent organization than with assessment through disputes. We also show that a rights holder with high essentiality patents sets a higher declaration rate than one with low essentiality patents.
    Date: 2018–06
  19. By: Klus, Milan F.; Lohwasser, Todor S.; Holotiuk, Friedrich; Moormann, Jürgen
    Abstract: In times of digitalization, firms increasingly need to form alliances due to the higher complexity and greater dynamics of markets. Digital innovation poses challenges for established institutions (e.g., banks) in adapting to changing rules that are set by new competitors and higher customer expectations. However, young firms providing technical solutions for the financial services industry (fintechs) also face difficulties, such as meeting regulatory requirements. Due to the shortcomings of both banks and fintechs, firms in the financial services industry are increasingly forming alliances. We conducted interviews to examine the motivations of both banks and fintechs to join forces. The resulting motives are categorized as matching, complementary, and neutral. The alliances in our sample can be differentiated into financial investments and customer-service provider relationships, with the second category being most common. However, our findings reveal that the occurrence of particular motives is not linked to certain types of alliances. Building on these findings, we develop a motivation framework and derive practical implications.
    JEL: G21 G23 G34 L14 L24 M13
    Date: 2018
  20. By: Juliette Brun (MINES ParisTech - École nationale supérieure des mines de Paris); Pascal Le Masson; Benoit Weil
    Abstract: Every designer-experienced or not-aspires to live Aha! moments, but how to favor these moments, where original ideas emerge, is not always obvious. While design methods often focus on the concept space, this article highlights the role of knowledge structuration in idea generation. By analyzing two cases of idea generation sessions with C-K theory, we show that generativity relies on the designers' ability to reorganize their own knowledge basis and thus create new design rules. " Incompatible knowledge " especially helps fostering such restructuration, and therefore, provoking inspiration.
    Keywords: idea generation,C-K design theory,knowledge structuration,design creativity,non-verbal tools
    Date: 2018–05–21
  21. By: Cristian Jara-Figueroa; Bogang Jun; Edward Glaeser; Cesar Hidalgo
    Abstract: How do regions acquire the knowledge they need to diversify their economic activities? How does the migration of workers among firms and industries contribute to the diffusion of that knowledge? Here we measure the industry, occupation, and location specific knowledge carried by workers from one establishment to the next using a dataset summarizing the individual work history for an entire country. We study pioneer firms?firms operating in an industry that was not present in a region?because the success of pioneers is the basic unit of regional economic diversification. We find that the growth and survival of pioneers increase significantly when their first hires are workers with experience in a related industry, and with work experience in the same location, but not with past experience in a related occupation. We compare these results with new firms that are not pioneers and find that industry specific knowledge is significantly more important for pioneer than non-pioneer firms. To address endogeneity we use Bartik instruments, which leverage national fluctuations in the demand for an activity as shocks for local labor supply. The instrumental variable estimates support the finding that industry related knowledge is a predictor of the survival and growth of pioneer firms. These findings expand our understanding of the micro-mechanisms underlying regional economic diversification events.
    Keywords: industry, occupation, knowledge, firm, survival
    Date: 2018–07

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