nep-ino New Economics Papers
on Innovation
Issue of 2021‒02‒08
fifteen papers chosen by
Uwe Cantner
University of Jena

  1. Competition and private R&D investment By Thomas Grebel; Lionel Nesta
  2. SHAPING THE UNKNOWN WITH VIRTUAL UNIVERSES-THE NEW FUEL FOR INNOVATION By Pascal Daloz; Patrick Johnson; Sébastien Massart; Pascal Le Masson; Benoit Weil
  3. Internet Access and U.S. - China Innovation Competition By Gerard Hoberg; Yuan Li; Gordon M. Phillips
  4. The Role of Human Capital in Structural Change and Growth in an Open Economy: Innovative and Absorptive Capacity Effects By Brita Bye; Taran Faehn
  5. No inventor is an island: social connectedness and the geography of knowledge flows in the US By Andreas Diemer; Tanner Regan
  6. Medical Innovation, Education, and Labor Market Outcomes of Cancer Patients By Sung-Hee Jeon; Vincent Pohl
  7. How to Identify Health Innovation Gaps? Insights from Data on Diseases’ Costs, Mortality, and Funding By Lopez, Claude; Roh, Hyeongyul; Butler, Brittney
  8. Human Capital Distribution and the Transition from Stagnation to Growth By Mario F. Carillo
  9. Understanding the European Union’s regional potential in low-carbon technologies By Enrico Bergamini; Georg Zachmann
  10. The Impact of R&D tax incentives in Portugal By Rita Bessone Basto; Ana Martins; Guida Nogueira
  11. The productivity paradox- policy lessons from MICROPROD By Grégory Claeys; Maria Demertzis
  12. The Impact of Covid-19 on Productivity By Nicholas Bloom; Philip Bunn; Paul Mizen; Pawel Smietanka; Gregory Thwaites
  13. Digital Innovation and its Potential Consequences: the Elasticity Augmenting Approach By Bertani, Filippo; Raberto, Marco; Teglio, Andrea; Cincotti, Silvano
  14. Urbanisation and the onset of modern economic growth By Liam Brunt; Cecilia García-Peñalosa
  15. Exploring the association between R&D expenditure and the job quality in the European Union By Fernando Almeida; Nelson Amoedo

  1. By: Thomas Grebel; Lionel Nesta (Université Côte d'Azur, CNRS, GREDEG (France))
    Abstract: We investigate the determinants of the sign of Research and Development reaction functions of rival firms. Using a two-stage n-firm Cournot competition game, we show that this sign depends on four types of environments in terms of product rivalry and technology spillovers. We test the predictions of the model on the world's largest manufacturing corporations. Assuming that firms make R&D investments based on the R&D effort of the representative rival company, we develop a dynamic panel data model that accounts for the endogeneity of the decision of the rival firm. Empirical results thoroughly corroborate the validity of the theoretical model.
    Date: 2020–05–27
  2. By: Pascal Daloz (Dassault Systèmes); Patrick Johnson (Dassault Systemes [Cambridge]); Sébastien Massart (Dassault Systèmes); Pascal Le Masson (CGS i3 - Centre de Gestion Scientifique i3 - CNRS - Centre National de la Recherche Scientifique - MINES ParisTech - École nationale supérieure des mines de Paris - PSL - Université Paris sciences et lettres); Benoit Weil (CGS i3 - Centre de Gestion Scientifique i3 - CNRS - Centre National de la Recherche Scientifique - MINES ParisTech - École nationale supérieure des mines de Paris - PSL - Université Paris sciences et lettres)
    Abstract: The new logic of financing innovation: from uncertainty reduction to shaping the unknown Handbooks in finance, as well as literature reviews, recall that financing innovation and financing productivity investment differ in their level of uncertainty. 1 Students learn that financing production investment requires a positive net present value (NPV), whereas financing innovation requires taking into account multiple uncertainties by computing expected NPV. Models of decision-making in uncertainty helped to compute the value of reducing uncertainty. 2 This approach is considered the best way to value investment in research and development (R&D)-R&D being considered an activity to reduce uncertainty. 3 In this time of "disruptive innovation" in the context of multiple socioeconomic and technological changes-such as energy transition, aging, and digitalization-it is tempting to consider that innovation dynamics tend to be characterized by an increase in uncertainty. Investments would, therefore, become much riskier, and financing might seem almost impossible. Fortunately, this "wisdom" misses a critical feature of contemporary innovation: it is not mainly about uncertainty but much more about "the unknown". In contemporary innovation, one has to deal not only with uncertain events, such as unstable markets and technological advances, but also partially unknown chimeras, such as inclusive mobility, smart cities, and sustainable energy. Therefore, it is critical for innovation success to deal with these initially unknown situations and shape them in a beneficial direction. 4 This distinction between uncertain and unknown has major consequences on innovation investment: the financing approach must not only consist of reducing uncertainty but also of shaping the unknown, i.e., through a capacity to design new alternatives, worlds, opportunities, markets, and usages.
    Date: 2020
  3. By: Gerard Hoberg; Yuan Li; Gordon M. Phillips
    Abstract: Using new measures of expanded Internet access in China and internet-based search, we examine how competitive shocks from China impact U.S. innovation through the markets for innovation and existing products. We identify shocks to innovation competition using the geography of Chinese internet penetration and Chinese import data. Increases in the ability of Chinese industry peers to gather knowledge through the internet are followed by reductions in U.S. R&D investment and subsequent patents, and increased patenting by Chinese firms. The new Chinese patents also cite the U.S. firms patents at a high rate, consistent with increased intellectual property competition.
    JEL: D43 F13 L21 L26 O31 O34
    Date: 2020–12
  4. By: Brita Bye; Taran Faehn
    Abstract: Since the financial crisis in 2008, slow growth has riddled Europe and the Covid-19 pandemic is amplifying the challenge. Promoting economic growth and transforming to a more knowledge-based industrial structure will be high on the agenda for the coming decades. We study how more and better human capital can contribute to knowledge accumulation and structural change by means of a dynamic endogenous growth model, with Norway as a numerical case. Human capital has two main roles in productivity growth: to increase the innovative capacity by participating in research and development (R&D), and to increase the absorptive capacity in sectors that trade and can learn from abroad. We find that in a small, open economy sectors where human capital, R&D and trade interact, and enable absorption, tend to grow fastest.
    Keywords: absorptive capacity, computable general equilibrium model, endogenous growth, human capital, innovation, research and development
    JEL: C68 F43 O30 O41
    Date: 2021
  5. By: Andreas Diemer; Tanner Regan
    Abstract: Do informal social ties connecting inventors across distant places promote knowledge flows between them? To measure informal ties, we use a new and direct index of social connectedness of regions based on aggregate Facebook friendships. We use a well-established identification strategy that relies on matching inventor citations with citations from examiners. Moreover, we isolate the specific effect of informal connections, above and beyond formal professional ties (co-inventor networks) and geographic proximity. We identify a significant and robust effect of informal ties on patent citation. Further, we find that the effect of geographic proximity on knowledge flows is entirely explained by informal social ties and professional networks. We also show that the effect of informal social ties on knowledge flows: has become increasingly important over the last two decades, is higher for older or `forgotten' patents, is more important for new entrepreneurs or `garage inventors', and is somewhat stronger across distant technology fields.
    Keywords: knowledge flows, diffusion, social connectedness, informal networks
    JEL: O33 R12 Z13
    Date: 2020–11
  6. By: Sung-Hee Jeon (Statistics Canada); Vincent Pohl (University of Georgia)
    Abstract: Innovations in cancer treatment have lowered mortality, but little is known about their economic benefits. We assess the effect of two decades of improvements in cancer treatment options on the labor market outcomes of breast and prostate cancer patients. In addition, we compare this effect across cancer patients with different levels of educational attainment. We estimate the effect of medical innovation on cancer patients’ labor market outcomes employing tax return and cancer registry data from Canada and measuring medical innovation by using the number of approved drugs and a quality-adjusted patent index. While cancer patients are less likely to work after their diagnosis, we find that the innovations in cancer treatment during the 1990s and 2000s reduced the negative employment effects of cancer by 63–70 percent. These benefits of medical innovation are limited to cancer patients with postsecondary education, raising concerns about unequal access to improved treatment options.
    Keywords: medical innovation, breast cancer, prostate cancer, labor supply, employment, earnings, returns to education
    JEL: I12 I14 I24 I26 J22 O31
    Date: 2019–03
  7. By: Lopez, Claude; Roh, Hyeongyul; Butler, Brittney
    Abstract: This report aims to identify disease categories with the highest economic and social costs and a low level of R&D investment. First, we combine data sets on diseases’ medical expenses, patient counts, death rates, and research funding. We then use text mining and machine learning methods to identify gaps between diseases’ social and economic costs and research investments in therapeutic areas. We find that only 25 percent of disease categories causing high economic and social costs received more than 1 percent of National Institutes of Health (NIH) funding over 12 years. In addition, rare diseases imposing high medical costs per patient collected 0.3 percent of research investments on average. A disease’s cost and impact on society are challenging to assess. Our results highlight that the different measures may lead to different conclusions if considered separately: A disease can have a very high cost per patient but a low death rate. They also show that merging information across data sets becomes more complicated when the sources do not focus on diseases specifically. Our analysis reveals that a formalized procedure to define the correspondence between data sets is needed to successfully develop a metric that allows a systematic assessment of diseases’ cost, impact on society, and investment level. Furthermore, the simplification of the large dimensional decision space will only be useful to the questions at hand if there is a clear order of priorities. In our case, the first was the costs and then funding. These priorities dictate how to merge the data sets.
    Keywords: Machine Learning, Disease Cost, NIH Funding, Health Innovation Gaps
    JEL: C8 I1 I14 I18
    Date: 2021–01
  8. By: Mario F. Carillo (Università di Napoli Federico II and CSEF)
    Abstract: This research argues that differences in the distribution of human capital across countries and their impact on the advancement and the adoption of technology contributed to the differential timing of the transition from the Malthusian stagnation to modern growth and the persistent differences in income per capita across the globe. Polarization in the distribution of human capital within an economy implied a trade-off between innovation and adoption of technologies that determined the transition from stagnation to growth. Despite the contribution of the upper tail of the human capital distribution to technological innovation, the absence of wide group of educated individuals among the working population delayed technology adoption and the transition from stagnation to growth.
    Keywords: Economic Growth; Human Capital Distribution; Demographic Transition; Long-run Development.
    JEL: I24 J13 J24 O30 O40
    Date: 2021–01–26
  9. By: Enrico Bergamini; Georg Zachmann
    Abstract: This research identifies existing and potential specialisation in green technologies in European Union regions, and proposes an approach to identify policies that can help to realise this potential. Using the Organisation for Economic Cooperation and Development’s REGPAT database for regionalised patent data, we estimate the potential advantage European NUTS2 regions could have in 14 green technologies. We use network proximity between technologies and between regions to understand technological/regional clusters, and...
    Date: 2020–11
  10. By: Rita Bessone Basto (Research Office of the Portuguese Ministry of the Economy and Digital Transition); Ana Martins (Research Office of the Portuguese Ministry of the Economy and Digital Transition); Guida Nogueira (Research Office of the Portuguese Ministry of the Economy and Digital Transition)
    Abstract: The competitiveness of an economy increasingly depends on its ability to innovate. Theory suggests that innovation makes an important contribution to growth both at the firm level and at the national level. Innovative economies that deliver new differentiated products and services and/or develop more efficient production processes are often more productive, more resilient and adaptable in the face of adversity and change, and better able to support higher living standards and thus greater well-being. However, because knowledge is a public good, without government support, private agents are likely to underinvest in R&D, as it usually leads to higher social returns than private ones. In this context, it is strategically important to use public funds to promote innovative activity in firms to achieve the optimal level of R&D investment. Since 2000, indirect public support through tax credits has become more prominent and is currently the main form of public R&D support for most OECD countries. This paper evaluates the impact of SIFIDE, the Portuguese system of tax incentives to corporate R&D investment, on firms’ behaviour. The results show the effectiveness of SIFIDE in promoting investment in R&D, both through the impact of the program on intangible investment and on R&D staff.
    Keywords: R&D tax credits, Innovation, BERD, SIFIDE, Propensity score matching, Differences-in-Differences.
    JEL: O31 O32 H25 H32 C31
    Date: 2021–01
  11. By: Grégory Claeys; Maria Demertzis
    Abstract: This Policy Contribution is an output from the MICROPROD project, which received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement no. 822390. Productivity growth in Europe has been on a downward trend for several decades. Given that productivity growth is a crucial source of output growth, particularly in an aging society like the European Union, it is crucial to understand what is driving this...
    Date: 2021–01
  12. By: Nicholas Bloom; Philip Bunn; Paul Mizen; Pawel Smietanka; Gregory Thwaites
    Abstract: We analyze the impact of Covid-19 on productivity in the United Kingdom using data derived from a large monthly firm panel survey. Our estimates suggest that Covid-19 will reduce TFP in the private sector by up to 5% in 2020 Q4, falling back to a 1% reduction in the medium term. Firms anticipate a large reduction in ‘within-firm’ productivity, primarily because measures to contain Covid-19 are expected to increase intermediate costs. The negative ‘within-firm’ effect is partially offset by a positive ‘between-firm’ effect as low productivity sectors, and the least productive firms among them, are disproportionately affected by Covid-19 and consequently make a smaller contribution to the economy. In the longer run, productivity growth is likely to be reduced by diminished R&D expenditure and diverted senior management time spent on dealing with the pandemic.
    JEL: E0 L2
    Date: 2020–12
  13. By: Bertani, Filippo; Raberto, Marco; Teglio, Andrea; Cincotti, Silvano
    Abstract: Digital technologies have been experiencing in the last thirty years a considerable development which has radically changed our economy and lives. In particular, the advent of new intangible technologies, represented by software, artificial intelligence and deep learning algorithms, has deeply affected our production systems from manufacturing to services, thanks also to further improvement of tangible computational assets. Investments in digital technologies have been increasing in most of developed countries, posing the issue of forecasting potential scenarios and consequences deriving form this new technological wave. The contribution of this paper is both theoretical and related to model design. First of all we present a new production function based on the concept of organizational units. Then, we enrich the macroeconomic model Eurace integrating this new function in the production processes in order to investigate the potential effects deriving from digital technologies innovation both at the micro and macro level.
    Keywords: Elasticity of substitution, Elasticity augmenting approach, Digital transformation, Agent-based economics, Organizational unit.
    JEL: C63 O33
    Date: 2021–01–15
  14. By: Liam Brunt (Norwegian School of Economics and CEPR); Cecilia García-Peñalosa (Aix-Marseille University, CNRS, EHESS, AMSE and CEPR)
    Abstract: A large literature characterizes urbanisation as the result of productivity growth attracting rural workers to cities. We incorporate economic geography elements into a growth model and suggest that causation runs the other way: when rural workers move to cities, the resulting urbanisation produces technological change and productivity growth. Urban density leads to knowledge exchange and innovation, thus creating a positive feedback loop between city size and productivity that sets off sustained economic growth. The model is consistent with the fact that urbanisation rates in Western Europe, and notably in England, reached unprecedented levels by the mid-18 th century, the eve of the Industrial Revolution.
    Keywords: industrialization, urbanisation, innovation, long-run growth
    JEL: N13 O14 O41
    Date: 2021–01
  15. By: Fernando Almeida; Nelson Amoedo
    Abstract: Investment in research and development is a key factor in increasing countries' competitiveness. However, its impact can potentially be broader and include other socially relevant elements like job quality. In effect, the quantity of generated jobs is an incomplete indicator since it does not allow to conclude on the quality of the job generated. In this sense, this paper intends to explore the relevance of R&D investments for the job quality in the European Union between 2009 and 2018. For this purpose, we investigate the effects of R&D expenditures made by the business sector, government, and higher education sector on three dimensions of job quality. Three research methods are employed, i.e. univariate linear analysis, multiple linear analysis, and cluster analysis. The findings only confirm the association between R&D expenditure and the number of hours worked, such that the European Union countries with the highest R&D expenses are those with the lowest average weekly working hours.
    Date: 2021–01

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