nep-ino New Economics Papers
on Innovation
Issue of 2020‒06‒08
fifteen papers chosen by
Uwe Cantner
University of Jena

  1. Innovation catalysts - How multinationals reshape the global geography of innovation By Riccardo Crescenzi; Arnaud Dyèvre; Frank Neffke
  2. The impact of financial constraints on tradable and non-tradable R&D investments in Portugal By Magalhaes, Manuela
  3. Related variety, recombinant knowledge and regional innovation. Evidence for Sweden, 1991-2010 By Mikhail Martynovich; Josef Taalbi
  4. Optimal Patent Policy for Pharmaceutical Industry By Izhak, Olena; Saxell, Tanja; Takalo, Tuomas
  5. The Importance of Tacit Knowledge: Dynamic Inventor Activity in the Commercialization Phase By Maurseth, Per Botolf; Svensson, Roger
  6. Semi-endogenous versus Schumpeterian growth models: a critical review of the literature and new evidence By Herzer, Dierk
  7. Schumpeter in Vienna: A Study Abroad Course By Dalton, John; Logan, Andrew
  8. Knowledge Transfers from Federally Supported R&D By Link, Albert
  9. Public policies and the art of catching up: matching the historical evidence with a multi-country agent-based model By Giovanni Dosi; Andrea Roventini; Emanuele Russo
  10. Economic modelling to evaluate Smart Specialisation: an analysis on research and innovation targets in Southern Europe By Javier Barberoa; Olga Diukanovaa; Carlo Gianellea; Simone Salottia; Artur Santoalha
  11. Boom, Bust, and Bitcoin: Bitcoin-Bubbles As Innovation Accelerators By Tobias Huber; Didier Sornette
  12. Intellectual property reform in the laboratory By Benslimane, I.; Crosetto, P.; Magni-Berton, R.; Varaine, S.
  13. Does Entrepreneurial Behaviour Matter for the Strong Porter Hypothesis By Bianco, Dominique
  14. Information technologies and entrepreneurship By Julien Hanoteau; Jean‐jacques Rosa
  15. Can Innovation Save Us? Understanding the Role of Innovation in Mitigating the Covid-19 Pandemic in ASEAN-5 Economies By Layos, Jerk Joshua Meire; Pena, Paul John

  1. By: Riccardo Crescenzi; Arnaud Dyèvre; Frank Neffke
    Abstract: We study whether and when Research and Development (R&D) activities by foreign multinationals help in the formation and development of new innovation clusters. Combining information on nearly four decades worth of patents with socio-economic data for regions that cover virtually the entire globe, we use matched difference-in-differences estimation to show that R&D activities by foreign multinationals have a positive causal effect on local innovation rates. This effect is sizeable: foreign research activities help a region climb 14 percentiles in the global innovation ranks within five years. This effect materializes through a combination of knowledge spillovers to domestic firms and the attraction of new foreign firms to the region. However, not all multinationals generate equal benefits. In spite of their advanced technological capabilities, technology leaders generate fewer spillovers than technologically less advanced multinationals. A closer inspection reveals that technology leaders also engage in fewer technological alliances and exchange fewer workers in local labor markets abroad than less advanced firms. Moreover, technology leaders tend to set up their foreign R&D activities in regions with relatively low absorptive capacity. We attribute these differences to that fact that the trade-off between costs and benefits of local spillovers a multinational faces depends on the multinational’s technological sophistication. This illustrates the importance of understanding corporate strategy when analyzing innovation clusters.
    Keywords: innovation, regions, foreign direct investment, patenting, cluster emergence
    JEL: O32 O33 R11 R12
    Date: 2020–03
  2. By: Magalhaes, Manuela
    Abstract: We develop a directed technical change model with two sectors, tradable and non-tradable, and dynamic firms’ decisions to invest in R&D in the presence of financial constraints. The model establishes a linkage between R&D decisions, product and process innovations, future productivity, profits, and credit constraints. The model is estimated using Portuguese firms’ data of the tradable and non-tradable sectors. We find that the previous R&D investments raises the innovating probabilities, the innovating probabilities are higher in the tradable sector, and the startup costs of innovation tend to be higher than the maintenance costs. The results also show complementary between the R&D benefits and the firm’s financial strength, diminishing marginal returns to capital on innovation benefits, and high heterogeneity of the innovation costs across industries. Finally, when the firms’ financial strength and the trade-off between tradable and non-tradable goods are considered, the R&D benefits in the non-tradable sector do not compensate its cost given the higher productivity and innovation probabilities of the tradable sector. As a result, the R&D investments in the tradable sector illustrates a misallocation of financial resources.
    Keywords: : Credit constraints, firm-level data, productivity, R&D, tradable and non-tradable goods.
    JEL: O31 O32
    Date: 2020–04–04
  3. By: Mikhail Martynovich; Josef Taalbi
    Abstract: This study investigates how related variety in the regional employment mix affects the innovation output of a region. Departing from the idea of recombinant innovation, previous research has argued that related variety enhances regional innovation as inter-industry knowledge spillovers occur more easily between different but cognitively similar industries. This study combines a novel dataset and related variety measures based on network theory, which allows a more nuanced perspective on the relationship between related variety and regional innovation. The principal novelty of the paper lies in employing new data on product innovations commercialised by Swedish manufacturing firms between 1970 and 2013. In this respect, it allows a direct measure of regional innovation output as compared to patent measures, usually employed in similar studies. The second contribution of this paper is that we employ network-topology based measures of related variety that allow us to measure relatedness as the recombination rather than direct flow of knowledge. We argue that this measure comes closer to the notion of innovation as spurred by recombination and show that this measure is a superior predictor of innovation activity.
    Keywords: related variety, relatedness, innovation, network analysis
    JEL: L16 O31 R11 R12
    Date: 2020–03
  4. By: Izhak, Olena; Saxell, Tanja; Takalo, Tuomas
    Abstract: We show how characterizing optimal patent policy for the pharmaceutical industry only requires information about generic producers’ responses to changes in the effective duration and scope of new drug patents. To estimate these responses, we use data on Paragraph IV patent challenges, and two quasi-experimental approaches: one based on changes in patent laws and another on the allocation of patent applications to examiners. We find that extending effective patent duration increases generic entry via Paragraph IV patent challenges whereas broadening protection reduces it. Our results imply that pharmaceutical patents should be made shorter but broader.
    Keywords: patent policy, pharmaceuticals, generic entry, innovation, imitation, Business regulation and international economics, I18, K20, L13, O34, O31,
    Date: 2020
  5. By: Maurseth, Per Botolf (Department of Economics); Svensson, Roger (Research Institute of Industrial Economics (IFN))
    Abstract: Inventors generally know more about their inventions than what is written down in patent applications. Because they possess this tacit knowledge, inventors may need to play an active role when patents are commercialized. We build on Arora (1995) and model firm-inventor cooperation in the commercialization of a given invention. Tacit knowledge warrants inventor activity. However, imperfect IPRs may reduce inventors’ incentives to engage in the commercialization process. We analyze when first-best inventor activity is achieved in a two-stage contract. In the empirical part, we analyze when inventor activity is important for the successful commercialization of patents by using a detailed patent database. The database contains unique information on inventor activity, patent commercialization modes and the profitability of commercialization. In the empirical estimations, we find that inventor activity has a strong positive correlation with profitability when a patent is sold or licensed to another firm. When a patent is sold or licensed in the second phase, it is still inventor activity in the first phase that matters for profitability. Thus, our interpretation is that tacit knowledge and close cooperation between inventors and external firms are often crucial for the successful commercialization of patents.
    Keywords: Tacit knowledge; Inventor activity; Patents; Commercialization
    JEL: O31 O33 O34
    Date: 2020–05–28
  6. By: Herzer, Dierk
    Abstract: Several studies have tested semi-endogenous versus Schumpeterian growth models using different methodological approaches. This paper critically reviews these studies including their approaches and provides new evidence on this issue, by analyzing both time-series data from the United States and panel data from 19 OECD countries over the period 1980-2014. The review finds much support for Schumpeterian growth theory, but shows that all studies reviewed have several limitations, including conceptual problems associated with the use of the number/stock of patents as a measure of the flow/stock of knowledge, the possibility of spurious regressions due to non-stationary data, potential mismeasurement of R&D inputs due to possible interpolation and deflation errors, misspecification problems that can arise in difference models when variables are cointegrated, and potential spurious rejections of the unit root hypothesis for R&D intensity when the lag length in unit root tests is too small. The present study avoids these limitations and finds strong evidence in favor of semi-endogenous growth.
    Keywords: semi-endogenous growth models, Schumpeterian growth models, R&D, TFP, unit roots, cointegration
    JEL: O30 O40
    Date: 2020–05
  7. By: Dalton, John; Logan, Andrew
    Abstract: This paper builds upon the work of Dalton and Logan (forthcoming a) by describing the motivation for and mechanics of teaching a course dedicated to Schumpeter as a study abroad program in the city of Vienna. We argue that the qualities Vienna possesses, both historical and contemporary, make a good laboratory for exploring Schumpeter's ideas and that the process of encountering a new culture through a study abroad course is the best way to internalize his theory of innovation. To do so, our paper first outlines the course content before describing the linkages between "techno-romantic" Vienna and Schumpeter's intellectual development. We then describe specific examples for how instructors can use Vienna as a laboratory for teaching Schumpeter's ideas. We close by sharing preparatory details for instructors and offering the perspective of a student who took this course in the summer of 2018.
    Keywords: Joseph Schumpeter; Vienna; Innovation; Entrepreneurship; Creative Destruction; Study Abroad; Education
    JEL: A20 B30 O31 O33 P00
    Date: 2020–05–13
  8. By: Link, Albert (University of North Carolina at Greensboro, Department of Economics)
    Abstract: The purpose of this paper is to identify covariates with publication activity, a form of knowledge transfer, from SBIR publicly funded research. The paper offers an argument about the policy relevance of studying knowledge transfers from publicly funded research that occurs in private sector firms. Relevant explanatory variables are the length of the funded research project, university involvement in the project, the firm's history of SBIR funding, and the academic background of firms' founders.
    Keywords: Technology transfer; Public sector R&D; Entrepreneurship; Program evaluation; SBIR program;
    JEL: H54 L26 O31 O32 O38
    Date: 2020–05–21
  9. By: Giovanni Dosi (Institute of Economics and EMbeDS, Scuola Superiore Sant’Anna, Pisa (Italy)); Andrea Roventini (OFCE Sciences Po, Sophia-Antipolis (France), Institute of Economics and EMbeDS, Scuola Superiore Sant’Anna, Pisa (Italy)); Emanuele Russo (Institute of Economics and EMbeDS, Scuola Superiore Sant’Anna, Pisa (Italy))
    Abstract: In this paper, we study the effects of industrial policies on international convergence using a multi-country agent-based model which builds upon Dosi et al. (2019b). The model features a group of microfounded economies, with evolving industries, populated by heterogeneous firms that compete in international markets. In each country, technological change is driven by firms’ activities of search and innovation, while aggregate demand formation and distribution follows Keynesian dynamics. Interactions among countries take place via trade flows and international technological imitation. We employ the model to assess the different strategies that laggard countries can adopt to catch up with leaders: market-friendly policies; industrial policies targeting the development of firms’ capabilities and R&D investments, as well as trade restrictions for infant industry protection; protectionist policies focusing on tariffs only. We find that markets cannot do the magic: in absence of government interventions, laggards will continue to fall behind. On the contrary, industrial policies can successfully drive international convergence among leaders and laggards, while protectionism alone is not necessary to support catching up and countries get stuck in a sort of middle-income trap. Finally, in a global trade war, where developed economies impose retaliatory tariffs, both laggards and leaders are worse off and world productivity growth slows down.
    Keywords: Endogenous growth, catching up, technology-gaps, industrial policies, agent-based models.
    JEL: F41 F43 O4 O3
    Date: 2020–06
  10. By: Javier Barberoa (European Commission, Joint Research Centre (JRC), Seville, Spain); Olga Diukanovaa (European Commission, Joint Research Centre (JRC), Seville, Spain); Carlo Gianellea (European Commission, Joint Research Centre (JRC), Seville, Spain); Simone Salottia (European Commission, Joint Research Centre (JRC), Seville, Spain); Artur Santoalha (TIK Centre, University of Oslo, Norway)
    Abstract: We make the case for a technology-enabled approach to Smart Specialisation policy making in order to foster its effectiveness by proposing a novel type of economic impact assessment. We use the RHOMOLO model to gauge empirically the general equilibrium effects implied by the Smart Specialisation logic of intervention as foreseen by the policy makers designing and implementing the European Cohesion policy. More specifically, we simulate the macroeconomic effects of achieving the R&D personnel targets planned by a set of Southern European regions. We discuss the implications of the proposed methodology for future assessments of Smart Specialisation.
    Date: 2020–05
  11. By: Tobias Huber (ETH Zürich); Didier Sornette (ETH Zürich - Department of Management, Technology, and Economics (D-MTEC); Swiss Finance Institute)
    Abstract: Bitcoin represents one of the most interesting technological breakthroughs and socio-economic experiments of the last decades. In this paper, we examine the role of speculative bubbles in the process of Bitcoin’s technological adoption by analyzing its social dynamics. We trace Bitcoin’s genesis and dissect the nature of its techno-economic innovation. In particular, we present an analysis of the techno-economic feedback loops that drive Bitcoin’s price and network effects. Based on our analysis of Bitcoin, we test and further refine the Social Bubble Hypothesis, which holds that bubbles constitute an essential component in the process of technological innovation. We argue that a hierarchy of repeating and exponentially increasing series of bubbles and hype cycles, which has occurred over the past decade since its inception, has bootstrapped Bitcoin into existence.
    Keywords: Bitcoin, Money, Cryptocurrencies, Financial Bubbles, Technological Innovation, Economic Growth, Reflexivity
    JEL: E40 G01 O40
    Date: 2020–05
  12. By: Benslimane, I.; Crosetto, P.; Magni-Berton, R.; Varaine, S.
    Abstract: This study attempts to experimentally capture the effects of democratic reform of intellectual property (IP) and measure how a vote "against IP" can disappoint the most talented innovators and reduce their creativity. Contrary to expectations, the results show that such a vote increases overall creativity. Actually, the most talented innovators do not vote in favor of IP. Rather, those who vote in favor of IP are those who benefit relatively more from royalties. Surprisingly, no correlation is found between these two populations: the IP in our experiment seems not to reward the best players, but the players choosing an ’autarkic’ strategy of relying on their own creationsand forego cross-fertilization with other players. These are not particularly brilliant players thatopt for a rent-seeking strategy that maximises gainsfromthe IP systemitself. There are plausible arguments to argue that this result is at least partly valid in the real world, especially for complexand highly sequential innovations where it has been proven that patent trolls and anti-competitivestrategies are important. These findings lead us not to recommend IP constitutional protections,because there are no major "tyranny from the majority" concerns.
    JEL: O34 D90 D72
    Date: 2020
  13. By: Bianco, Dominique
    Abstract: The traditional economic argument states that compliance with environmental policy diverts resources from innovation. In his engaging paper, Porter (1991) argues counterintuitively that more stringent environmental policies induce innovations the benefits of which exceed the costs. We build a Schumpeterian endogenous growth model that takes account of both arguments by including satisficing and profit-maximizing managers. Our theoretical results enable us to determine the validity condition of the strong Porter hypothesis which is consistent with empirical results.
    Keywords: Endogenous growth, Environmental Porter hypothesis, Environmental policy, Entrepreneurial Behaviours.
    JEL: D40 H23 L21 O33 O44 Q58
    Date: 2020–05–04
  14. By: Julien Hanoteau (KEDGE Business School [Marseille], AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique - AMU - Aix Marseille Université); Jean‐jacques Rosa (Institut d'Études Politiques [IEP] - Paris)
    Abstract: This article shows how the increase of information availability due to new technologies positively affects aggregate entrepreneurship in national economies. We rely on an "occupational choice" model of managerial production, extended to include the managerial use of information, to explain variations in the number of entrepreneurs, and thus of firms, as measured by the aggregate new business creation data. We present evidence that supports such a theory of industrial organization dynamics for a sample of 78 economies over the period 2004–2012 using panel data instrumental variable regressions.
    Keywords: Entrepreneurship,Information and communication technologies,Managerial information,Industrial organization
    Date: 2019–01–07
  15. By: Layos, Jerk Joshua Meire; Pena, Paul John
    Abstract: The novel coronavirus (Covid-19) pandemic raises the question of whether innovation can save humanity. Indeed, as it always has, innovation is the path towards finding solutions such as vaccines, treatments and policies that mitigate the further spread of the virus. Since the announcement of a global pandemic on March 12, 2020, countries with relatively high levels of innovation remain high on the world rankings on new cases and deaths while countries considered relatively lower in innovation are not. We test the relationship between innovation systems and the ability of its pre-epidemic state to address the pandemic. We use a two-step System Generalized Method of Moments (GMM) to test this relationship using cases from the ASEAN-5 economies and their respective levels of innovation as reported in the Global Innovation Index. We find that the relationship between the level of innovation and a country’s ability to respond to the crisis to be significant and positive. We also find that search interest, an indicator of market response within an innovation context, to have a significant negative relationship with crisis management. We provide some preliminary analyses and insights on these two key findings as well as policy recommendations concerning innovation systems.
    Keywords: coronavirus, covid-19, innovation systems, Triple Helix, ASEAN
    JEL: F15 I10 O30
    Date: 2020–05–02

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