nep-ino New Economics Papers
on Innovation
Issue of 2020‒05‒25
eight papers chosen by
Uwe Cantner
University of Jena

  1. Expected Profits and The Scientific Novelty of Innovation By David Dranove; Craig Garthwaite; Manuel I. Hermosilla
  2. From the Entrepreneurial to the Ossified Economy: Evidence, Explanations and a New Perspective By Naudé, Wim
  3. Growing through Spinoffs. Corporate Governance, Entry, and Innovation By Maurizio Iacopetta; Raoul Minetti; Pierluigi Murro
  4. Education and Innovation: The Long Shadow of the Cultural Revolution By Zhangkai Huang; Gordon M. Phillips; Jialun Yang; Yi Zhang
  5. Public universities, in search of enhanced funding By Ritzen, Jo
  6. How does innovation take place in the mining industry? : Understanding the logic behind innovation in a changing context. By Calzada Olvera, Beatriz; Iizuka, Michiko
  7. The Coronavirus Economic Crisis: Its Impact on Venture Capital and High Growth Enterprises By Colin Mason
  8. Immigration, Innovation, and Growth By Konrad B. Burchardi; Thomas Chaney; Tarek Alexander Hassan; Lisa Tarquinio; Stephen J. Terry

  1. By: David Dranove; Craig Garthwaite; Manuel I. Hermosilla
    Abstract: Innovation policy involves trading off monopoly output and pricing in the short run in exchange for incentives for firms to develop new products in the future. While existing research demonstrates that expected profits fuel R&D investments, little is known about the novelty of the projects funded by these investments. Relying on data that describe the scientific approaches used by a large sample of experimental drug projects, we expand on this literature by examining the scientific novelty of pharmaceutical R&D investments following the creation of the Medicare Part D program. We find little evidence that the positive demand shock implied by this program prompted firms to undertake scientifically novel R&D activity, as measured by whether the specific scientific approach had been used before. However, we find some evidence that firms invested in products involving novel combinations of scientific approaches. These estimates can inform economists and policymakers assessing the tradeoffs associated with marginal changes in commercial returns from newly developed pharmaceutical products.
    JEL: I1 O3
    Date: 2020–05
  2. By: Naudé, Wim
    Abstract: Entrepreneurship in advanced economies is in decline. This comes as a surprise: many scholars have anticipated an upsurge in entrepreneurship, and expected an "entrepreneurial economy" to replace the post-WW2 "managed" economy. Instead of the "entrepreneurial economy" what has come into being may perhaps better be labelled the "ossified economy." This paper starts by document the decline. It then critically presents the current explanations offered in the literature. While having merit, these explanations are proximate and supply-side oriented. Given these shortcomings, this paper contributes a new perspective: it argues that negative scale effects from rising complexity, as well as long-run changes in aggregate demand due to inequality and rising energy costs, are also responsible. Implications for entrepreneurship scholarship are drawn.
    Keywords: Entrepreneurship,start-ups,development,economic complexity,growth theory
    JEL: O47 O33 J24 E21 E25
    Date: 2020
  3. By: Maurizio Iacopetta (Sciences Po-OFCE and SKEMA Business School); Raoul Minetti (Michigan State University); Pierluigi Murro (LUISS University)
    Abstract: New firms are often based on ideas that the founders developed while working for incumbent firms. We study the macroeconomic effects of spinoffs through a growth model of product variety expansion, driven by firm entry, and product innovation. Spinoffs stem from conflicts of interest between incumbent firms' shareholders and employees. The analysis suggests that incumbents invest more in product innovation when knowledge protection is stronger. An inverted-U shape relationship emerges, however, between the intensity of spinoff activities and the strength of the rule of law. A calibration experiment indicates that, with a good rule of law, loosening knowledge protection by 53 reduces product innovation by one fifth in the short run and one seventh in the long run, but boosts the spinoff rate by one tenth and one sixth in the short and long run, respectively. Nevertheless, per capita income growth drops and welfare deteriorates. The trade-offs are broadly consistent with evidence from Italian firms.
    Keywords: Corporate Governance, Endogenous Growth, Spinoffs.
    JEL: E44 O40 G30
    Date: 2020–05
  4. By: Zhangkai Huang; Gordon M. Phillips; Jialun Yang; Yi Zhang
    Abstract: The Cultural Revolution deprived Chinese students of the opportunity to receive higher education for 10 years when colleges and universities were closed from 1966-1976. We examine the human capital cost of this loss of education on subsequent innovation by firms, and ask if it impacted firms more than 30 years later. We examine the innovation of firms with CEOs who turned 18 during the Cultural Revolution, which sharply reduced their chances of attending college. Using multiple approaches to control for selection and endogeneity, including an instrument based on whether the CEO turned 18 during the Cultural Revolution and a regression discontinuity approach, we show that Chinese firms led by CEOs without a college degree spend less on R&D, generate fewer patents, and receive fewer citations to these patents.
    JEL: G3 I23 J24 O31 O32
    Date: 2020–05
  5. By: Ritzen, Jo (UNU-MERIT, Maastricht University)
    Abstract: Many countries rely for the majority of their university education on public universities. Public universities have a certain degree of autonomy to compete for research funding, to establish profit making start-ups or sell patents or to find other funding for their research. They can sometimes also set tuition fees for their educational efforts, for all students or for specific subgroups of students. These additional funds are very important for public universities to maintain their international position, in particular in cases where governments are retreating in funding (like, for example, in California). We start by consider the impact of funding on the quality of research and teaching and though research and teaching on the economy. Finally we consider the possible effects of the Covid-19 crisis on university funding.
    Keywords: University finance, tuition fees, Government policy, International student migration, innovation, human capital, economic development, Covid-19
    JEL: F22 I22 I23 I28 O15 O32 O34
    Date: 2020–05–15
  6. By: Calzada Olvera, Beatriz (UNU-MERIT, Maastricht University); Iizuka, Michiko (UNU-MERIT, and the National Graduate Research Institute on Policy Studies (GRIPS), Japan)
    Abstract: Mining activity has been contributing to the income of resource-rich developing countries but it has also been considered as a "curse" for economic development. Reviews of a literature from innovation perspective reveal that the sector has the following mutually-influencing constraints on innovation: a) the commodity price is volatile and exogenously-determined, leaving no scope for differentiation; b) mining firms have low incentive for investing in knowledge (e.g. research and development (R & D)) due to low appropriability; c) development of mines require large, upfront, and long-term investments, leaving no room to take additional risks; d) mining firms tend to operate in an enclave, with limited backward and forward linkages; and e) comparative advantage is largely determined by the presence of mineral deposit not by productive capability. This study aims to bring together evidence to understand the innovation mechanisms in the mining sector. We uncovered that innovation and linkages in mining sector are closely related to commodity prices as follows: a) mineral exploration, a risky, knowledge-intensive investment to increase mineral supply that leads to profit, is equivalent to R&D; b) mining firms increase the exploration and R&D investments when the mineral prices rise; c) mining firms rely on innovation by the suppliers to reduce production cost; and d) mining firms increase the use of suppliers when mineral prices fall. The better understanding of innovation mechanism in mining sector enables to formulate effective policies to make the sector to be a catalyst in transforming the economy of resource rich developing countries.
    Keywords: the resource curse, mining, innovation, economic development, extractive industry
    JEL: L72 O25
    Date: 2020–05–13
  7. By: Colin Mason (University of Glasgow)
    Abstract: This paper has been prepared as a contribution to a larger on-going research activity on high growth innovative enterprises (HGEs) and scale up companies of the European Commission’s Joint Research Centre (JRC), led by the Unit for Finance, Innovation and Growth (B7). This broad activity has been analysing the sectoral and geographical variability of HGE demographics in the EU and the framework conditions affecting their development with an emphasis on financing and risk-financing in particular. In keeping with the JRC’s role of providing evidence and analysis to underpin EU policy, the work is conducted in close contact with a wide range of Commission policy DGs, and is designed to provide both EU-wide and member state specific input to the annual cycle of economic policy coordination in the EU known as the “European Semester†. In the context of the COVID-19 crisis and the policy response to the immediate and subsequent socio-economic fallout, the vulnerability of high-growth and potential high-growth enterprises is of huge concern particularly in view of the disproportionate contribution these enterprises can play in securing a sustainable exit from the crisis in the medium to long term. The importance of risk-capital for these firms means that it is vital to have a close-to-real-time means of monitoring the impacts of the crisis on venture capital markets in Europe and globally so that pertinent evidence can be provided also in close-to-real-time to those developing and implementing the policy response to the crisis. This paper represents a particularly timely contribution in this regard.
    Keywords: Covid-19
    Date: 2020–04
  8. By: Konrad B. Burchardi; Thomas Chaney; Tarek Alexander Hassan; Lisa Tarquinio; Stephen J. Terry
    Abstract: We show a causal impact of immigration on innovation and dynamism in US counties. To identify the causal impact of immigration, we use 130 years of detailed data on migrations from foreign countries to US counties to isolate quasi-random variation in the ancestry composition of US counties that results purely from the interaction of two historical forces: (i) changes over time in the relative attractiveness of different destinations within the US to the average migrant arriving at the time and (ii) the staggered timing of the arrival of migrants from different origin countries. We then use this plausibly exogenous variation in ancestry composition to predict the total number of migrants flowing into each US county in recent decades. We show four main results. First, immigration has a positive impact on innovation, measured by the patenting of local firms. Second, immigration has a positive impact on measures of local economic dynamism. Third, the positive impact of immigration on innovation percolates over space, but spatial spillovers quickly die out with distance. Fourth, the impact of immigration on innovation is stronger for more educated migrants.
    JEL: J61 O31 O40
    Date: 2020–05

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