nep-ino New Economics Papers
on Innovation
Issue of 2018‒10‒15
seventeen papers chosen by
Uwe Cantner
University of Jena

  1. Technological Change and Financial Innovation in Banking: Some Implications for Fintech By Frame, W. Scott; Wall, Larry D.; White, Lawrence J.
  2. R&D, Competition and Diffusion of Innovation in the EU: The Case of Hepatitis C By Berdud, M.; Garau, M.; Neri, M.; O'Neill, P.; Sampson, C.; Towse, A.
  3. Globalization, Structural Change and Innovation in Emerging Economies : The Impact on Employment and Skills By Vivarelli, Marco
  4. Inventive Capabilities in the Division of Innovative Labor By Ashish Arora; Wesley M. Cohen; Colleen M. Cunningham
  5. The role of international and domestic R&D outsourcing for firm innovation By María García-Vega; Elena Huergo
  6. Innovation growth clusters: Lessons from the industrial revolution By DUDLEY, Leonard; RAUH, Christopher
  7. Innovation and Inequality: World Evidence By Benos, Nikos; Tsiachtsiras, Georgios
  8. Allocation of R&D Grants in the Business Sector By Falk, Martin; Svensson, Roger
  9. Skill, innovation and wage inequality: Can immigrants be the trump card? By Gouranga Gopal Das; Sugata Marjit
  10. Patent costs and the value of inventions: Explaining patenting behaviour between England, Ireland and Scotland, 1617-1852 By Billington, Stephen D.
  11. Corruption, Government Subsidies, and Innovation: Evidence from China By Lily Fang; Josh Lerner; Chaopeng Wu; Qi Zhang
  12. Entrepreneurial motivation and idea generation by displaced employees By Källner, Emelie; Nyström, Kristina
  13. Crowding out or Knowledge Spillovers: The Wind Power Industry´s Effect on Related Energy Machinery By Grafström, Jonas
  14. Eating the Seed Corn? The Impact of Generic Drug Entry on Innovation in Animal Health By Clancy, Matthew S.; Sneeringer, Stacy E.
  15. Coordination Frictions and Economic Growth By Miroslav Gabrovski
  16. Racing With or Against the Machine? Evidence from Europe By Terry Gregory; Anna Salomons; Ulrich Zierahn
  17. The Regional Economic Impacts of University Research and Science Parks By Link, Albert; Hobbs, Kelsi; Shelton, Terri

  1. By: Frame, W. Scott (Federal Reserve Bank of Atlanta); Wall, Larry D. (Federal Reserve Bank of Atlanta); White, Lawrence J. (New York University)
    Abstract: Financial intermediation has changed dramatically over the past 30 years, due in large part to technological change. The paper first describes the role of the financial system in a modern economy and how technological change and financial innovation can affect social welfare. We then survey the empirical literatures relating to several specific financial innovations, broadly categorized as new production processes, new products or services, or new organizational forms. In each case, we also include examples of significant fintech innovations that are transforming various aspects of banking. Drawing on the literature on innovations from the 1990s and 2000s informs what we might expect from recent developments.
    Keywords: financial innovation; technological change; banking; fintech
    JEL: G21 G23 O33
    Date: 2018–10–01
  2. By: Berdud, M.; Garau, M.; Neri, M.; O'Neill, P.; Sampson, C.; Towse, A.
    Abstract: In the pharmaceutical industry, intellectual property (IP) rights protection including patents, data exclusivity (DE), and supplementary protection certificates (SPCs), are important due to the high costs of research and development (R&D) for new medicines and the issue of appropriability, a concept that reflects innovator's capacity to capture or appropriate the added value created by successful innovation. Problems can arise if the amount of appropriation is too low or too high. A low degree of appropriability could result in dynamic inefficiency or a suboptimal (too low) investment in innovation. However, too much IP protection might grant the originator market power for an excessive period. Such market power enables prices above manufacturing and distribution cost to give a return on R&D, but results in static inefficiency, whereby innovative medicines are not used by some patients/countries/systems. This research paper by OHE contributes to this debate by analysing the functioning of a specific market for innovative treatments, Direct Acting Antivirals (DAAs) for hepatitis C virus (HCV) in six European countries. The authors explore potential for in-class competition for DAAs to offset innovators' market power and to maximise the social welfare generated by the adoption of pharmaceutical innovation via lower prices. Using a multidisciplinary methodological approach combining a theoretical economic framework with uptake/market share analyses by country and interviews, this OHE research concludes that - (i) IP incentives for R&D may have encouraged a high degree of in-class competition of DAAs close to the first entrant launch; (ii) in-class competition had a positive impact on uptake and adoption of DAAs in the top-5 European countries and; (iii) although in-class competition is a necessary condition for early adoption and fast uptake of innovative medicines, it is not sufficient as there are other factors related to the performance of the new technology, characteristics of the healthcare system and political factors which can have an effect.
    Keywords: Economics of innovation; Economics of Industry
    JEL: I1
    Date: 2018–07–01
  3. By: Vivarelli, Marco
    Abstract: This paper aims to provide a critical overview of the drivers that the relevant theoretical and empirical literature suggests being crucial in dealing with the challenges an emerging country may encounter in its attempts to further catch-up a higher income status, with a particular focus devoted to the implications for the domestic labor market. In the first part of the paper, attention will be focused on structural change, capability building and technological progress, trying to map - using different taxonomies put forward by the innovation literature - the concrete ways through which an emerging country can engage a successful catching-up, having in mind that developing countries are deeply involved into globalized markets where domestic innovation has to be complemented by the role played by international technology transfer. In the second part of the paper, the focus will be moved to the possible consequences of this road to catching-up in terms of employment and skills. In particular, the prescriptions by the conventional trade theory will be contrasted with a view taking into account technology transfer, labor-saving technological progress and skill-enhancing trade.
    Keywords: catching-up,structural change,globalization,capabilities,technological transfer
    JEL: O14 O33
    Date: 2018
  4. By: Ashish Arora; Wesley M. Cohen; Colleen M. Cunningham
    Abstract: We study how the inventive capability of a firm conditions its participation in a division of innovative labor. Capable firms are, by definition, able to invent; for them, external inventions substitute for their own R&D. However, external knowledge is an input into internal invention, and thus, more valuable to firms with inventive capability. Using a simple model of innovation and imitation, we explore how inventive capability affects a firm’s R&D investments, and thus whether and how it innovates, imitates, or does neither. Further, we study how these outcomes are conditioned by the supply of external knowledge as well as the supply of external inventions. In an advance over the literature, we treat firm inventive capability as unobserved, and use a latent class multinomial model to infer its value. Using a recent survey of product innovation and the division of innovative labor among US manufacturing firms, we find that high capability firms tend to use internal, rather than externally generated inventions, to innovate, and they use external knowledge to enhance their internal inventive activity. By contrast, lower capability firms are more likely to introduce “me-too” or imitative products, and when they innovate, are more likely to rely on external sources of inventions. Our findings suggest the successful pursuit of R&D-led growth depends both on firm inventive capability and the external knowledge environment.
    JEL: O31 O32
    Date: 2018–09
  5. By: María García-Vega; Elena Huergo
    Abstract: Firms are increasingly outsourcing their high-tech services. Theory suggests that R&D outsourcing allows firms to specialize in core knowledge-intensive tasks, thereby increasing innovation, but R&D outsourcing may also undermine internal capabilities. Our goal is to empirically assess the relative importance of these two possibilities, distinguishing between national and international R&D outsourcing and firms’ exporting status. We examine R&D purchases of more than 10,000 Spanish firms for the period 2004-2014. We show that R&D outsourcing improves firm innovation. Product innovation rises mostly with domestic outsourcing, while process innovation increases with both domestic and international R&D outsourcing. In addition, we find that international outsourcing provides an extra premium, mostly for exporters. Our results contribute to a better understanding of how firms organize the production of knowledge and innovation.
    Keywords: R&D outsourcing; transaction cost economics; innovation; international versus domestic outsourcing; exporters.
    Date: 2018
  6. By: DUDLEY, Leonard; RAUH, Christopher
    Abstract: Over three centuries ago, a new technology suddenly increased the amount and frequency of available information. Might such «Big Data» have disrupted the causal relationships linking economic growth and innovation? Previous research has affirmed that a society’s economic success during the Industrial Revolution depended on its institutions. Here we examine the hypothesis that by allowing people to cooperate more easily with one another, language standardization raised a society’s rate of innovation. As a result, the region could attract the resources needed to grow more rapidly. Empirical tests with 117 innovations and 251 Western cities suggest that the presence of a standardized tongue helps to explain the burst of innovation and growth observed between 1700 and 1850. Moreover, once one has accounted for language standardization, institutional quality has little further power to explain economic progress.
    Date: 2018
  7. By: Benos, Nikos; Tsiachtsiras, Georgios
    Abstract: In this paper we use country panel data to explore the effect of innovation on top income inequality. We construct a novel dataset of patents by combining patents from USPTO and EPO to test the effect of innovation on income inequality. We demonstrate that innovation has a strong positive correlation with top income shares. Also, we find weak evidence that innovation has a negative effect on overall income inequality. We support our findings by using instrumental variables to tackle endogeneity. In addition our IV analysis shows that the effect of innovation on top income shares remains significant for 3 years. Finally, we show that innovation has a less strong effect on top income inequality when we include defensive patents in the analysis.
    Keywords: top income inequality, overall inequality, innovation, citations, defensive patents
    JEL: D63 O30 O31 O33 O34 O40 O47
    Date: 2018–09–27
  8. By: Falk, Martin (Austrian Institute of Economic Research (WIFO)); Svensson, Roger (Research Institute of Industrial Economics (IFN))
    Abstract: The aim of this paper is to provide new empirical evidence on the most crucial determinants of success for firms applying for public R&D grants. Previous studies have been limited to firm level data and mainly tested how firm characteristics affect the allocation of R&D grants. Thereby, they cannot differentiate between firms that have applied for grants but been rejected and firms that did not apply at all. Our contribution is that we use a detailed database of accepted and rejected R&D applications and also introduce several measures of quality indicators of R&D project applications. The estimates show that R&D projects that are assessed with good or very good ratings are significantly more likely to receive approval; particularly for innovative content and novelty as well as to expected additional impacts on R&D activities. In contrast to previous studies, most firm-level characteristics (R&D intensity, labor productivity, cash flow, industry affiliation) are not relevant, indicating that the R&D funding agency does not discriminate among different types of firms. Consequently, applicant firms should focus on radical, new and innovative ideas in their applications rather than on minor improvements.
    Keywords: Government R&D-funding; Business sector; Evaluation criteria
    JEL: H25 O32 O38
    Date: 2018–09–14
  9. By: Gouranga Gopal Das; Sugata Marjit
    Abstract: With the ensuing immigration reform in the US, the paper shows that targeted skilled immigration into the R&D sector that helps low-skilled labor is conducive for controlling inequality and raising wage. Skilled talent-led innovation could have spillover benefits for the unskilled sector while immigration into the production sector will always reduce wage, aggravating wage inequality. In essence, we infer: (i) if R&D inputs contributes only to skilled sector, wage inequality increases in general; (ii) for wage gap to decrease, R&D sector must produce inputs that goes into unskilled manufacturing sector; (iii) even with two types of specific R&D inputs entering into the skilled and unskilled sectors separately, unskilled labor is not always benefited by high skilled migrants into R&D-sector. Rather, it depends on the importance of migrants’ skill in R&D activities and intensity of inputs. Inclusive immigration policy requires inter-sectoral diffusion of ideas embedded in talented immigrants targeted for innovation.
    Keywords: H1B, Immigration, Innovation, Wage gap, Skill, R&D, Policy, RAISE Act.
    Date: 2018
  10. By: Billington, Stephen D.
    Abstract: Ascertaining whether patents encourage invention necessitates understanding the incentives inventors respond to. The British patent system prior to its reform in 1852 was cumbersome and expensive. Whether it facilitated or delayed the Industrial Revolution is hotly debated. This paper's contribution is to examine the incentives to patent, and the characteristics of patentees, by observing the entire population of British patents granted up to the patent reforms of 1852. I find inventors patented widely because they had valuable inventions. Their value was positively associated with the skills and wealth of patentees. Inventors responded to demand-side conditions, and the system's expense did not hinder invention.
    Keywords: Incentives,Innovation,Patents,Patent Quality,Industrial Revolution
    JEL: N74 O31 O34
    Date: 2018
  11. By: Lily Fang; Josh Lerner; Chaopeng Wu; Qi Zhang
    Abstract: Governments are important financiers of private sector innovation. While these public funds can ease capital constraints and information asymmetries, they can also introduce political distortions. We empirically explore these issues for China, where a quarter of firms’ R&D expenditures come from government subsidies. Using a difference-in-differences approach, we find that the anticorruption campaign that began in 2012 and the departures of local government officials responsible for innovation programs strengthened the relationship between firms’ historical innovative efficiency and subsequent subsidy awards and depressed the influence of their corruption-related expenditures. We also examine the impact of these changes: subsidies became significantly positively associated with future innovation after the anti-corruption campaign and the departure of government innovation officials.
    JEL: G28 H25 O32
    Date: 2018–09
  12. By: Källner, Emelie (Department of Industrial Economics and Management, KTH, The Royal Institute of Technology); Nyström, Kristina (The Ratio Institute)
    Abstract: This paper studies the entrepreneurial motivation and idea generation process of displaced employees. The empirical results are based on both quantitative (survey) and qualitative (interviews) data collected from displaced employees who decided to become entrepreneurs after the closure of R&D facilities of the pharmaceutical company AstraZeneca in Lund (2010) and Södertälje (2012), Sweden. The empirical findings show that the previous experience and expertise gained from AstraZeneca greatly influenced the idea generation process. Although the employees were affected by their job displacement, still 70 percent of the entrepreneurial activities could be regarded as opportunity-based, suggesting that many entrepreneurs are driven by a combination of push and pull motives. With regard to the timing of the idea generation process, about one third of the entrepreneurs came up with their business ideas before learning about the facility closures. Hence, in many cases, being affected by the displacement spurred the launch of ideas that already existed.
    Keywords: Entrepreneurship; firm closure; firm exit; entrepreneurship after displacement; entrepreneurial idea generation
    JEL: J63 L26
    Date: 2018–09–11
  13. By: Grafström, Jonas (The Ratio Institute)
    Abstract: There is a risk that if a government adopts a R&D spending policy directed towards wind power technology crowding out of other technologies might occur due to fiscal constraints and changes in relative prices. The purpose of this paper is to provide a backward-looking analysis of how the accumulation of wind energy patents and public R&D spending affected the domestic and neighboring country output of granted patents in the “related energy machinery field”. The econometric analysis, a Poisson fixed-effects estimator based on the Hausman, Hall and Griliches (1984) method, relies on a data set consisting of eight countries in Western Europe with the highest rates of patent production in the field of wind power between 1978 and 2008. The results show that an accumulation of a national wind power stock is a statistically significant negative determinant of a country’s related energy machinery patenting outcomes. However, no crowding out effects of public R&D spending were found.
    Keywords: knowledge spillovers; wind power; R&D; patents; renewable energy; innovation
    JEL: E61 O32 Q20 Q58
    Date: 2018–08–24
  14. By: Clancy, Matthew S.; Sneeringer, Stacy E.
    Keywords: Productivity Analysis and Emerging Technologies, Industrial Org./Supply Chain Management, Food and Agricultural Policy Analysis
    Date: 2018–06–20
  15. By: Miroslav Gabrovski (University of Hawaii at Manoa)
    Abstract: In practice, firms face a mass of scarce innovation projects. They choose one research avenue towards which to direct their effort, but do not coordinate these choices. This gives rise to coordination frictions. This paper develops an expanding-variety growth model to study the impact of these frictions on the economy. The coordination failure generates a mass of foregone innovation and reduces the economy-wide research intensity. Both effects decrease the growth rate. Because of this, the frictions also amplify the fraction of wasteful simultaneous innovation. A calibration suggests the impact of coordination frictions on the growth rate and welfare is substantial.
    Keywords: Growth, Frictions, Coordination, Simultaneous Innovation, Search for Ideas
    JEL: O30 O31 O32 O33 O40
    Date: 2018–10
  16. By: Terry Gregory; Anna Salomons; Ulrich Zierahn
    Abstract: A fast-growing literature shows that digital technologies are displacing labor from routine tasks, raising concerns that labor is racing against the machine. We develop a task-based framework to estimate the aggregate labor demand and employment effects of routine-replacing technological change (RRTC), along with the underlying mechanisms. We show that while RRTC has indeed had strong displacement effects in the European Union between 1999 and 2010, it has simultaneously created new jobs through increased product demand, outweighing displacement effects and resulting in net employment growth. However, we also show that this finding depends on the distribution of gains from technological progress.
    Keywords: labor demand, employment, routine-replacing technological change, tasks, local demand spillovers
    JEL: E24 J23 J24 O33
    Date: 2018
  17. By: Link, Albert (University of North Carolina at Greensboro, Department of Economics); Hobbs, Kelsi (University of North Carolina at Greensboro, Department of Economics); Shelton, Terri (University of North Carolina at Greensboro, Department of Economics)
    Abstract: This paper focuses on the regional economic impacts of U.S. university research and science parks. Motivating this focus is the fact that the landscape for private-sector research is changing, and future research might well emphasize America’s “new geography of innovation.” Thus, university research and science parks might face, if they are not already doing so, pressure to retain current tenants and competition for future tenants. We find that only 11 of 146 research and science parks in the United States have, in the spirit of public accountability, conducted an economic impact study. One reason for the paucity of such studies is that universities are unfamiliar about how to conduct as well as how to interpret the findings from such a study. We offer an economic impact method for park administrators to follow if they proceed to document the regional economic impact of their park.
    Keywords: University research and science park; Public accountability; Economic impact
    JEL: H43 H54 O32
    Date: 2018–10–08

This nep-ino issue is ©2018 by Uwe Cantner. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.