nep-ino New Economics Papers
on Innovation
Issue of 2019‒04‒22
seventeen papers chosen by
Uwe Cantner
University of Jena

  1. The trade-off between absorptive capacity and appropriability of the returns to innovation effort By Crowley, Frank; Jordan, Declan
  2. External R&D Acquisition and Product Innovation By OA Carboni; G. Medda
  3. The Effects of Foreign Direct Investment on Regional Innovation Capacity in China By Paul J.J. Welfens; Tian Xiong
  4. Market Concentration and the Productivity Slowdown By Olmstead-Rumsey, Jane
  5. Anatomy of the medical innovation process: What are the consequences of replicability issues on innovation? By Blandinieres, Florence
  6. Innovation in the Interwar Years By Mahnken, Thomas G.
  7. A Quest for Autonomy and Excellence: The Defense Innovation Systems of France and Sweden By Lundmark, Martin
  8. Who Profits from Patents? Rent-Sharing at Innovative Firms By Kline, Patrick; Petkova, Neviana; Williams, Heidi; Zidar, Owen
  9. Electrical Bus Mobility in the EU and China: Technological, Ecological and Economic Policy Perspectives By Paul J.J. Welfens; Nan Yu; David Hanrahan; Benedikt Schmuelling; Heiko Fechtner
  10. The Very Healthy US Defense Innovation System By Gholz, Eugene; Sapolsky, Harvey M.
  11. Moving ideas across borders: Migrant inventors, patents and FDI By Ana Cuadros; Jordi Paniagua; Antonio Navas
  12. What Happened to U.S. Business Dynamism? By Akcigit, Ufuk; Ates, Sina T.
  13. Ten Facts on Declining Business Dynamism and Lessons from Endogenous Growth Theory By Akcigit, Ufuk; Ates, Sina T.
  14. Public Procurement as a Demand-side Policy: Project Competition and Innovation Incentives By De Chiara, Alessandro; Iossa, Elisabetta
  15. The Limits of Lending? Banks and Technology Adoption across Russia By Bircan, Cagatay; de Haas, Ralph
  16. In-Text Patent Citations: A User’s Guide By Kevin A. Bryan; Yasin Ozcan; Bhaven N. Sampat
  17. A Theory of Falling Growth and Rising Rents By Aghion, Philippe; Bergeaud, Antonin; Boppart, Timo; Klenow, Peter J.; Li, Huiyu

  1. By: Crowley, Frank; Jordan, Declan
    Abstract: A key concept in the economics of innovation is the 'public good' nature of knowledge. This generates a tension between incentivizing knowledge production by allowing knowledge creators appropriate the economic benefits and encouraging its diffusion to enhance the social return to knowledge creation. Where firms operate in localities that are characterized by greater entrepreneurship, there may be lower incentives to engage in research and development. This would result from a higher risk of knowledge spillovers to local start-ups and/or that employees may exploit new knowledge in spin-out firms. It has also been suggested in the literature that greater local entrepreneurial activity may lower profits for incumbent firms, through greater competition and/or the leakage of commercially valuable new knowledge. This paper presents a novel conceptual perspective on this tension and empirically tests it. Using Swedish firmlevel data and county-level data on new start-ups, this paper estimates the effect on R&D activity of local rates of business start-ups. It finds that greater numbers of new start-ups in a metropolitan area reduces firm-level R&D expenditure. However, this relationship is not linear, so that at higher levels of new firm formation in a region, firm-level R&D expenditure falls at a diminishing rate. This suggests that the effect of local entrepreneurship on a business' R&D decisions is conditioned by the extent of that entrepreneurship.
    Keywords: Innovation,entrepreneurship,absorptive capacity,knowledge spillovers
    JEL: R11 O33 O31
    Date: 2018
  2. By: OA Carboni; G. Medda
    Abstract: The outsourcing of R&D activities is considered an important way to acquire external technological information that can be integrated into a firm's own knowledge endowment. Given the complex relationship between R&D partnerships and innovation performance, it becomes of paramount importance for scholars, managers and policy-makers to understand whether and how outsourcing benefits the firm. This paper tries to assess the impact that external sources of R&D may have on product innovation, differentiating between R&D supplied by universities and other companies. The empirical analysis is based on a large and representative sample of European manufacturing companies. The analysis considers R&D an endogenous decision in investigating its effect on product innovation. An instrumental variable two-step estimation method is employed to deal with this issue. The results suggest that R&D intensity, or the share of R&D acquired from external sources, has a positive and significant effect on product innovation. Furthermore, we find evidence of an inverse U-shaped relationship between R&D outsourcing and innovation, meaning that on average, costs start to outweigh benefits as the R&D collaboration projects increase. We also estimate high returns from R&D acquired from universities on the probability to achieve product innovations, while having firms in the same group as research partners has the largest effect on innovative product sales. The results have straightforward implications for the practice of R&D managers. In order to gain advantages from partnership in research, innovation managers need to jointly exploit these different types of collaboration activities and their potential synergies. Given that the innovative firms in the sample desire additional credit which actually they do not obtain, R&D managers should also be concerned with the financing sources firms have access to. Finally, the analysis suggests that managers ought to identify the appropriate level of external acquisition in order to fully benefit on innovation.
    Keywords: External R&D;research partners;innovation performance;IV model
    Date: 2019
  3. By: Paul J.J. Welfens (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW)); Tian Xiong (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW))
    Abstract: Foreign direct investment (FDI) has been widely considered as an essential channel contributing to a host countries’ innovation development through knowledge and skill spillover effects. In recent years, China has become the second biggest FDI recipient in the world and continues to promote its domestic innovation ability. Here, the question of how FDI affect the growth of regional innovation in China is posed. By applying an alternative knowledge production function (KPF), we investigate the effects of FDI on the development of self-innovation capacities in 31 Chinese provinces using a fixed-effects specification panel data analysis covering the period from 2000 to 2015. Our findings on the contribution of FDI to the growth of different kinds of patent applications in different regions are mixed. Significant results were mainly found for invention patents in the eastern region. Concluding, we suggest potential policy implementations.
    Keywords: Regional Innovation Capacity, Patent, Foreign Direct Investment, China
    JEL: O33 O34 F21 R11
    Date: 2018–06
  4. By: Olmstead-Rumsey, Jane
    Abstract: Since around 2000, U.S. aggregate productivity growth has slowed and product market (sales) concentration has risen. At the same time, productivity differences among firms in the same sector appear to have risen dramatically. In this paper I propose a rich model of competition and innovation to explain the coincidence of these three observations. In the model a key parameter governing all three phenomena is the probability that innovating firms make radical innovations. Thus one explanation for rising concentration, slower productivity growth, and wider technology differences among firms is that the incidence of radical innovations has slowed relative to the 1990s, when the internet and other information technology radically transformed production and sales technology in many sectors.
    Keywords: Endogenous growth; market concentration; market power; productivity slowdown; superstar firms
    JEL: E23 L1 O3 O4
    Date: 2019–04–10
  5. By: Blandinieres, Florence
    Abstract: This paper is concerned with exploring the implications of replicability issues over the medical innovation process. Each research setting is characterized by a specific level of replicability, variability increasing with the complexity of the testing settings. The study introduces new measures to quantify the research efforts across different medical experimental settings. Doing so allows to map the dynamics of knowledge along the medical R&D spectrum and over time. The lack of replicability of experiments was overcome by recombining technological knowledge coming from distinct uses (laboratory tool and other medical applications) with clinical insights. The citation analysis suggests that science, technology, and clinical learning interact strongly and have an uneven importance over time. The study stresses the importance of economics of scope between experimenting and technology developments. In this process, a new type of chemotherapy emerged without a centralized institution governing the testing effort. Research and innovation policy implications are discussed.
    Keywords: medical innovation,knowledge translation,replication,instrumentation
    JEL: I12 O31 D83 D85
    Date: 2019
  6. By: Mahnken, Thomas G.
    Abstract: Defense innovation is the transformation of ideas and knowledge into new or improved products, processes, and services for military and dual-use applications. It refers primarily to organizations and activities associated with the defense and dual-use civil-military science, technology, and industrial base. Included at this level are, for instance, changes in planning, programming, budgeting, research, development, acquisition and other business processes. The period between the two world wars offers a rich set of cases for examining defense innovation. These include the development of armored warfare, strategic bombing, close air support, carrier aviation, amphibious warfare, and radio and radar. Whereas others have focused on military innovation in the interwar period, the focus of this brief is on defense innovation in general, andthe development of tanks in Britain, the United States, and Germany in particular.
    Keywords: Social and Behavioral Sciences, defense innovation, Germany, Britain, United States, tanks
    Date: 2018–05–30
  7. By: Lundmark, Martin
    Abstract: The defense innovation systems (DIS) in France and Sweden have longstanding traditions of domestic innovation and high self-reliance, but they differ greatly in how they have achieved these ambitions. France has almost complete self-reliance in defense technology and close government control of activities contributing to defense innovation and regarding the defense industry. In France, there is considerable state ownership, and foreign ownership is blocked. In contrast, Sweden has delimited its breadth of sovereign technology development since the 1990s, and now expresses three "essential security interests": fighter aircraft, underwater capability, and cyber. This research brief describes what characterizes the present defense innovation systems in these countries, discusses their similarities and differences, and points out factors that have led to their success.
    Keywords: Social and Behavioral Sciences, defense innovation, France, Sweden, state ownership
    Date: 2018–05–30
  8. By: Kline, Patrick; Petkova, Neviana; Williams, Heidi; Zidar, Owen
    Abstract: This paper analyzes how patent-induced shocks to labor productivity propagate into worker compensation using a new linkage of US patent applications to US business and worker tax records. We infer the causal effects of patent allowances by comparing firms whose patent applications were initially allowed to those whose patent applications were initially rejected. To identify patents that are ex-ante valuable, we extrapolate the excess stock return estimates of Kogan et al. (2017) to the full set of accepted and rejected patent applications based on predetermined firm and patent application characteristics. An initial allowance of an ex-ante valuable patent generates substantial increases in firm productivity and worker compensation. By contrast, initial allowances of lower ex-ante value patents yield no detectable effects on firm outcomes. On average, workers capture 29 cents of every dollar of patent-induced operating surplus. This share is larger for men, employees who are listed as inventors, and firm stayers present since the year of application. Patent allowances lead firms to increase employment, but we find minimal evidence of quality upgrading or selection bias in workforce composition. Surprisingly, entry wages are insensitive to patent decisions, suggesting that the large earnings responses of incumbent workers may reflect performance pay.
    Keywords: Social and Behavioral Sciences, patents, profit, rent-sharing, innovative firms
    Date: 2017–09–01
  9. By: Paul J.J. Welfens (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW)); Nan Yu (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW)); David Hanrahan (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW)); Benedikt Schmuelling (Lehrstuhl für Elektromobilität und Energiespeichersysteme (EES), Bergische Universität Wuppertal); Heiko Fechtner (Lehrstuhl für Elektromobilität und Energiespeichersysteme (EES), Bergische Universität Wuppertal)
    Abstract: The analysis provides a hybrid techno-economic perspective on EU and China e-bus development dynamics. China is a leading global electric bus user – particularly in certain provinces. In Europe, the European Commission has started an electric bus initiative and several EU member countries have tried to achieve progress with regard to their own municipal e-bus fleets. While the economic analysis shows that e-bus innovation and diffusion dynamics can be influenced by government procurement policy, it is also obvious that certain pricing schemes in e-bus (mixed) municipal mobility networks are not successfully promoting clean e-bus expansion. A key issue is that various grant schemes depress the prices for used e-buses which in turn creates additional risk for e-bus leasing arrangements. Industrial policy aspects as well innovation policy face challenges in the e-bus context. China’s regional e-bus approaches have shown considerable success and part of China’s patent dynamics supports e-bus expansion perspectives. From a technological perspective, there are several alternative modes of e-bus mobility whose technological and economic advantages have to be explored in the context of the characteristics of local and regional bus routes. A very important technological element of e-mobility concerns technical aspects of battery charging – for example, cycle lifetime, power density, charging time and safety. The price dynamics of battery packs is rather high and should stimulate the expansion of e-bus mobility in Europe and China. One key problem faced by Europe and Asia is the challenge of common technical standards. As regards Germany’s and the UK’s position as a potential lead markets for e-bus mobility – or a similar positioning of a network of EU cities – much depends on adequate new policy initiatives. The emissions reductions which could be achieved by transitioning to 100% e-bus mobility in the EU would amount to an estimated 1.3% cut in terms of emissions of the transport sector (without aviation).
    Keywords: Sustainability, municipal transportation, e-bus, technology, EU, China
    JEL: N74 N75 Q55 Q56 R4
    Date: 2018–12
  10. By: Gholz, Eugene; Sapolsky, Harvey M.
    Abstract: The US defense innovation system enjoys tremendous advantages that other countries cannot readily replicate. It has accumulated capabilities over decades of funding and experimentation that dwarf other countries’ efforts, and the incentives to innovate in the United States are not easily replicable elsewhere. The unique US political system favors substitution of technology for labor, openness to new ideas, and competition among decentralized organizations to solve national security challenges. The constant worrying that the United States is losing its defense innovation advantages is simply part of the politics that keep the United States far, far ahead of its potential rivals.
    Keywords: Social and Behavioral Sciences, United States, defense innovation, technology
    Date: 2018–05–30
  11. By: Ana Cuadros (Jaume I University (Spain).); Jordi Paniagua (Department of Economic Structure, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain).); Antonio Navas (University of Sheffield (United Kingdom).)
    Abstract: The purpose of this paper is to gain insights into the exact mechanisms through which migration enhances the innovative performance of multinational firms and fosters Foreign Direct Investment (FDI). We develop a formal model showing that migrants may help firms to increase the perceived quality of their products at the host country of investment. This can be done by patent an invention that permits the customization of products in order to meet foreign quality standards. We focus on a very specific type of migrants: Those who cross borders and patent an invention (migrant inventors). The structural estimation of our model using high-dimensional PPML 2SLS confirms our theoretical priors at both the intensive and the extensive margins. A placebo test reveals that non-inventor migrants are not a good instrument to capture the effect of patents on FDI. Additionally, a structural PPML gravity estimation shows that both patents and migrants inventors fosters Greenfield FDI, with a larger impact on the intensive margin. Our estimations also reveal certain sectoral heterogeneity.
    Keywords: migrant inventors; patents; FDI; foreign Direct Investment; migration
    JEL: F20 F21 F23
    Date: 2019–04
  12. By: Akcigit, Ufuk; Ates, Sina T.
    Abstract: In the past several decades, the U.S. economy has witnessed a number of striking trends that indicate a rising market concentration and a slowdown in business dynamism. In this paper, we make an attempt to understand potential common forces behind these empirical regularities through the lens of a micro-founded general equilibrium model of endogenous firm dynamics. Importantly, the theoretical model captures the strategic behavior between competing firms, its effect on their innovation decisions, and the resulting ``best versus the rest'' dynamics. We focus on multiple potential mechanisms that can potentially drive the observed changes and use the calibrated model to assess the relative importance of these channels with particular attention to the implied transitional dynamics. Our results highlight the dominant role of a decline in the intensity of knowledge diffusion from the frontier firms to the laggard ones in explaining the observed shifts. We conclude by presenting new evidence that corroborates a declining knowledge diffusion in the economy. We document a higher concentration of patenting in the hands of firms with the largest stock and a changing nature of patents, especially in the post-2000 period, which suggests a heavy use of intellectual property protection by market leaders to limit the diffusion of knowledge. These findings present a potential avenue for future research on the drivers of declining knowledge diffusion.
    Keywords: business dynamism; Competition; knowledge diffusion; Market concentration
    JEL: E22 E25 L12 O31 O33
    Date: 2019–04
  13. By: Akcigit, Ufuk; Ates, Sina T.
    Abstract: In this paper, we review the literature on declining business dynamism and its implications in the United States and propose a unifying theory to analyze the symptoms and the potential causes of this decline. We first highlight 10 pronounced stylized facts related to declining business dynamism documented in the literature and discuss some of the existing attempts to explain them. We then describe a theoretical framework of endogenous markups, innovation, and competition that can potentially speak to all of these facts jointly. We next explore some theoretical predictions of this framework, which are shaped by two interacting forces: a "composition effect" that determines the market concentration and an "incentive effect" that determines how firms respond to a given concentration in the economy. The results highlight that a decline in "knowledge diffusion" between frontier and laggard firms could be a significant driver of empirical trends observed in the data. This study emphasizes the potential of growth theory for the analysis of factors behind declining business dynamism and the need for further investigation in this direction.
    Keywords: business dynamism; Competition; Innovation; knowledge diffusion; Market concentration; Markups; patenting
    JEL: E22 K20 L10 L41 O33 O34
    Date: 2019–04
  14. By: De Chiara, Alessandro; Iossa, Elisabetta
    Abstract: We develop a model of project competition to compare two alternative and widely used approaches: (i) A (demand-side) procurement approach, in which the public authority specifies the type of project it will finance and (ii) a (supply-side) grant system, in which any type of project can be funded. The public authority can verify the characteristics of the projects submitted, but does not know which other projects are available. The paper sheds light on the role of public procurement to foster innovation.
    Keywords: Crowding out; innovation policy; Procurement; Research and Development; Steering effect
    JEL: D8 H57 L2 O31 O38
    Date: 2019–04
  15. By: Bircan, Cagatay; de Haas, Ralph
    Abstract: We exploit historically-determined variation in local credit markets to identify the impact of bank lending on firm innovation across Russia. We find that deeper credit markets increase firms' use of bank credit, their adoption of new products and technologies, and productivity growth. This relationship is more pronounced in industries further from the technological frontier; more exposed to import competition; and that export more. These impacts are also stronger for firms near historical R&D centers or railways, and in regions with supportive institutions. Consistent with these results, credit markets contribute to economic growth in such regions.
    Keywords: credit constraints; Firm innovation; institutions; Russia; Technological change
    JEL: D22 G21 O12 O31
    Date: 2019–04
  16. By: Kevin A. Bryan; Yasin Ozcan; Bhaven N. Sampat
    Abstract: We introduce, validate, and provide a public database of a new measure of the knowledge inventors draw on: scientific references in patent specifications. These references are common and algorithmically extractable. Critically, they are very different from the “front page” prior art commonly used to proxy for inventor knowledge. Only 24% of front page citations to academic articles are in the patent text, and 31% of in-text citations are on the front page. We explain these differences by describing the legal rules and practice governing citation. Empirical validations suggest that in-text citations appear to more accurately measure real knowledge flows, consistent with their legal role.
    JEL: O3
    Date: 2019–04
  17. By: Aghion, Philippe (College de France); Bergeaud, Antonin (Banque de France); Boppart, Timo (IIES); Klenow, Peter J. (Stanford University); Li, Huiyu (Federal Reserve Bank of San Francisco)
    Abstract: Growth has fallen in the U.S., while firm concentration and profits have risen. Meanwhile, labor’s share of national income is down, mostly due to the rising market share of low labor share firms. We propose a theory for these trends in which the driving force is falling firm-level costs of spanning multiple markets, perhaps due to accelerating ICT advances. In response, the most efficient firms spread into new markets, thereby generating a temporary burst of growth. Because their efficiency is difficult to imitate, less efficient firms find their markets more difficult to enter profitably and innovate less. Even the most efficient firms do less innovation eventually because they are more likely to compete with each other if they try to expand further.
    Date: 2019–03–27

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