nep-ino New Economics Papers
on Innovation
Issue of 2022‒05‒23
eight papers chosen by
Uwe Cantner
University of Jena

  1. Innovation catalysts: how multinationals reshape the global geography of innovation By Crescenzi, Riccardo; Dyevre, Arnaud; Neffke, Frank
  2. Can the Government Be an Effective Venture Capital Investor? By Martina Fraschini; Andrea Maino; Luciano Somoza
  3. Bubbles and the Value of Innovation By Valentin Haddad; Paul Ho; Erik Loualiche
  4. Migration and invention in the Age of Mass Migration By DIodato, Dario; Morrison, Andrea; Petralia, Sergio
  5. Green start-ups and the role of founder personality By Chapman, Gary; Hottenrott, Hanna
  6. The North-South divide: sources of divergence, policies for convergence By Lucrezia Fanti; Marcelo C. Pereira; Maria Enrica Virgillito
  7. Assessing Whether Mission-Driven Innovation Makes a Difference: Mission Impossible? Developing a Guiding Framework for the Evaluation of Five Mission Driven Environments for Health in Sweden By Essén, Anna; Wennberg, Karl; Krohwinkel, Anna
  8. Are industrial policy instruments effective?: A review of the evidence in OECD countries By Chiara Criscuolo; Nicolas Gonne; Kohei Kitazawa; Guy Lalanne

  1. By: Crescenzi, Riccardo; Dyevre, Arnaud; Neffke, Frank
    Abstract: We study whether and when Research and Development (R&D) activities by foreign multinationals facilitate the formation and growth 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: over a five‐year period, foreign research activities help a region climb 14 centiles in the global innovation ranks. 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 with local firms abroad than less advanced firms. Moreover, technology leaders tend to set up their foreign R&D activities in regions with lower levels of economic development than less advanced firms, yet with comparable public sector research capacity. These findings suggest that multinationals with high levels of technological sophistication face comparatively unfavorable tradeoffs between the costs and benefits of local spillovers, underscoring the importance of understanding corporate strategy when analyzing innovation clusters.
    Keywords: innovation; regions; foreign direct investment; patenting; cluster emergence; European Union Horizon 2020 Program H2020/2014‐2020) (Grant Agreement n 639633‐MASSIVE‐ERC‐ 2014‐STG; T&F deal
    JEL: O32 O33 R11 R12
    Date: 2022–04–21
  2. By: Martina Fraschini (University of Lausanne, HEC; Swiss Finance Institute); Andrea Maino (University of Geneva); Luciano Somoza (University of Lausanne, HEC; Swiss Finance Institute)
    Abstract: In recent years, governments have allocated increasing capital to direct startup funding through Government-sponsored Venture Capital funds (GVC). In this paper, we study the role of GVCs in the venture capital market and their relationship with Private Venture Capitalists (PVC). Using European data, we find that GVCs invest consistently with their policy mandates, favoring specific industries, geographical areas, and firms with high innovation potential, but have lower average performances. These findings indicate that GVCs can identify innovative companies and prioritize positive externalities over profit maximization. We build an asset pricing model with heterogeneous preferences to study the role of GVCs in catalyzing PVC investments. We find that PVCs invest less in startups previously funded by GVCs, in line with empirical evidence. At aggregate level, GVC investments can crowd-in private ones if they focus on startups in VC hubs.
    Keywords: venture capital, public investments, crowd-in, subsidy, industrial policy, patent data, innovation.
    JEL: G24 G11 G18 H54 O30
    Date: 2022–04
  3. By: Valentin Haddad; Paul Ho; Erik Loualiche
    Abstract: Booming innovation often coincides with intense speculation in financial markets. Using over a million patents, we document two ways the market valuation of innovation and its economic impact become disconnected during bubbles. Specifically, an innovation raises the stock price of its creator by 40% more than is justified by future outcomes. In contrast, competitors’ stock prices move little despite their profits suffering. We develop a theory of investor disagreement about which firms will succeed that reconciles both the facts, unlike existing models of bubbles. Optimal innovation policy during bubbles must account for the disconnect.
    JEL: G0 G4 O3
    Date: 2022–04
  4. By: DIodato, Dario; Morrison, Andrea; Petralia, Sergio
    Abstract: More than 30 million people migrated to the USA between late-ninetieth and early-twentieth century, and thousands became inventors. Drawing on a novel dataset of immigrant inventors in the USA, we assess the city-level impact of immigrants' patenting and their contribution to the technological specialization of the receiving US regions between 1870 and 1940. Our results show that native inventors benefited from the inventive activity of immigrants. In addition, we show that the knowledge transferred by immigrants gave rise to new and previously not exiting technological fields in the US regions where immigrants moved to.
    Keywords: Age of Mass Migration; immigration; innovation; knowledge spill-over; patent; USA
    JEL: F22 O31 R30 J61
    Date: 2022–03–16
  5. By: Chapman, Gary; Hottenrott, Hanna
    Abstract: Green start-ups play a vital role in the needed transition towards more environmentally sustainable economies. Yet our understanding of why some founders start green ventures and others do not remains incomplete. We build on the cognitive and decision-making perspectives on start-ups proenvironmental engagement to shed light on the role of founders' personality traits - focusing on the 'Big 5' and risk tolerance - in explaining whether founders' start new ventures with environmentally friendly products. Our analysis of a large, representative, manufacturing and service sector sample of German start-ups illustrates the important role of founder personality traits. Specifically, openness and extraversion promote environmentally friendly products while neuroticism inhibits it. We discuss the implications of these insights.
    Keywords: emission reduction,environmentally friendly products,green innovation,Big Fivepersonality traits,sustainability
    JEL: G24 L26 O25 O31
    Date: 2022
  6. By: Lucrezia Fanti; Marcelo C. Pereira; Maria Enrica Virgillito
    Abstract: Building upon the labour-augmented K+S modelling framework (Dosi et al., 2010, 2017, 2020), we address the analysis of the North-South divide by means of an agent-based model (ABM) endogenously reproducing divergence between two artificial macro-regions characterized by identical initial conditions in terms of productive and innovation structures, but different labour market organizations. Given the ex-ante initial conditions, we identify the role played by different functioning of the labour markets on the possible divergence across the two regions. We do find that divergences in labour market reverberate into asymmetric productive performance due to negative reinforcing feedback loop dynamics. We then confront alternative policy schemes by showing that investment policies directed at increasing machine renewal and higher substitutionary investment are the most effective in fostering the convergence process.
    Keywords: Agent-Based Models; Technology Gap; Labour Market.
    Date: 2022–05–17
  7. By: Essén, Anna (Department of Entrepreneurship, Innovation, and Technology); Wennberg, Karl (Dept. of Management and Organization); Krohwinkel, Anna (Leading Health Care)
    Abstract: Background. Mission-driven innovation (MDI) policies are founded on governmental attempts to address fundamental but complex societal challenges. The rationale behind such attempts is typically to influence the directionality of innovation towards addressing the perceived challenge. This report focuses on a particular instance of MDI policy executed by Sweden’s innovation agency, Vinnova: the funding of five so-called “mission-driven environments” (MDEs) in 2019. The policy in question is called ‘Vision-Driven Health’ and was initiated in 2019 to support the establishment of inter-organizational and cross-disciplinary coalitions that work towards a common vision and a long-term systemic transformation within the Swedish health care and life science sector. Aim. The report aims to provide a framework for evaluating five MDEs funded by Vinnova. Vinnova asked us to consider, in particular, the role of eight “Work Principles” (WPs) they recommended the MDEs implement. This report is the result of the first (of two) possible steps in evaluating the five MDEs. The first step is about developing a framework for evaluating MDEs. We hereafter refer to it as a pre-study. A second step would involve actually evaluating the five MDEs based on the framework in this report. Methods. The report is based on selective reviews of relevant literature providing insights about best practices for setting up and governing MDE-like initiatives and possible approaches and challenges to evaluating such initiatives. We also collected empirical data about how the five Swedish MDEs operationalized the principles. We surveyed members of the participating MDEs, asking them what a meaningful evaluation could imply from their perspectives. Finally, we consulted a group of external experts on three occasions. Findings. At an overall level, the Vinnova-recommended WPs partly align with practices recommended in the relevant literatures. However, the WPs are formulated abstractly and implemented heterogeneously by the five MDEs. We argue that this heterogeneous implementation is necessary for the MDEs to progress towards their visions but complicates a uniform set of evaluation principles. The MDEs also prioritize the WPs differently, and we observed an additional set of informal WPs. The literature consists primarily of normative studies defining MDI and its relevance and studies that discuss sets of challenges tied to evaluating MDI policies and initiatives. Empirical studies and evaluations remain scarce. Suggestions. Drawing on insights from the literature, we outline a framework for formative and summative evaluation that could be used to evaluate the MDEs and the WPs with which they are set to work. We specifically argue for combining contribution and attribution approaches to evaluation, which could include the following steps: Formative Evaluation Steps (A) If and to what extent the MDE is justified due to a “failure” of the system, market, or current development direction; (B) If and how the MDE’s governance arrangements are purposeful, consistent, and coherent (processes and structures; i.e., ways of working and formalized routines, standards, decisions, and rules); (C) If and how there is a “match” between the MDE’s interventions and identified barriers (weaknesses, bottlenecks, impeding regulations, social norms, etc.). Formative and Summative Evaluation Step (D) If and how the targeted overarching sociotechnical system/field demonstrates improved performance, such as capabilities (system functions and interactions like knowledge sharing), transition processes, and outcomes. Summative Evaluation Steps (E) If and how the targeted overarching sociotechnical system/field exhibits structural changes, such as a change in the types of innovations, new forms of cross-sectorial collaborations, or new networks constellations in the system, because of the MDE; (F) If and to what extent there is measurable impact on the societal level in terms of mitigating the failure addressed and reaching the MDE’s “vision” or “mission.” For evaluating specific MDEs, we conclude that the formative Steps B and C (and after the MDEs have been in operation for some time, Steps D and E, which also are discussed in the report) are of utmost relevance. Step A is a policy-mix decision, and Step F is an evaluation of the overall policy). For Steps B through E, we detail how an evaluation could be done and the type of data needed and exemplify useful methods for each evaluation step. Continuous Evaluations For Step B (governance arrangements), we suggest that evaluations focus on: Are the WP formulated necessary and sufficient for MDEs? Are some WPs more important than others to achieve the expected process outcomes? How do MDEs develop routines and decision rules to operationalize the WPs, and what are the results of their progress? For Step C, we suggest that each MDE evaluate the “match” between the interventions and initiatives they initiate and the barriers to reaching the vision they identified. This involves assessing whether an MDE seems to contribute to eliminating or diminishing the power of bottlenecks in a sociotechnical system. Ideally, this should focus on the most crucial bottlenecks. This step is a necessary precursor to evaluating whether the MDE spurs the emergence of new, needed functions in the sociotechnical system (Steps D and E). This type of evaluation must be (a) conducted on an ongoing basis and (b) handled or coordinated by the MDEs because identifying barriers to their goals and launching initiatives to address such barriers are, in fact, their raisons d’être. Ex Post Evaluations Summative and attribution-oriented evaluation steps aim to assess outcomes and the degree to which an MDE reached its goals. This implies a “working backwards” approach, where observable changes are reviewed, followed by an analysis of whether they can be linked causally to an MDE intervention/activity. Here we suggest evaluating whether and how the targeted sociotechnical system(s) demonstrates improved performance (formative/summative evaluation Step D) and whether the system exhibits any structural changes that facilitate reaching the vision (summative evaluation Steps E and F). Ideally, such evaluations should be conducted ex post the current MDE initiatives because systematic change often takes years to accrue. As such, these types of evaluations instead should be conducted by the policy actor or external evaluators working on their behalf, not the MDEs. Considerations. The MDEs in focus are similar in having received funding (relatively small relative to other MDI initiatives globally) from Vinnova and being instructed to implement eight WP. However, the MDEs also were given agency in determining what challenges to focus on, how to design their vision, and how to implement the WP. We show that the MDEs exhibit great differences in these regards, which has logical consequences for designing an evaluation approach that is useful for all five. Thus, we caution against assessing the MDEs uniformly on all WPs or mere “vision attainment.” Instead, we argue that an evaluation of the MDEs also needs to assess the WPs; that is, it should evaluate the policy design of the overall MDE program. Finally, a prerequisite for addressing multiple and diverse stakeholders’ needs is to gain their trust. Stakeholders who are more engaged with and understand the evaluation’s wider purposes are less inclined to feel “threatened” and will impart more useful and meaningful information. Thus, we argue for actively involving the MDEs in the evaluation steps (especially Step C, which is a tool to actively help them prioritize, document, and evaluate the actions and initiatives they take) and, whenever needed, organize external expert panels to assist them in this work.
    Keywords: Mission-driven Innovation; innovation policy; healthcare; evaluation; grand challenges
    JEL: E61
    Date: 2022–05–03
  8. By: Chiara Criscuolo (OECD); Nicolas Gonne (OECD); Kohei Kitazawa (OECD); Guy Lalanne (OECD)
    Abstract: While the case for industrial policy is gaining traction across OECD countries, little consensus exists on the effectiveness of such interventions. Building on a new analytical framework for industrial policy developed in a companion paper, this paper reviews the empirical literature on the effectiveness of industrial policy instruments, laying out the knowns and unknowns. Overall, it strongly supports the premise that well-designed economic incentives for firms and good framework conditions shaping the business environment are effective. At the same time, it emphasises the limited and inconclusive nature of the evidence regarding the increasingly frequent targeted and demand-side instruments. Finally, it underlines the complementarities between economic incentives and other interventions such as skill policies or framework conditions, notably competition and trade policies. Framework conditions are indeed key in enabling the most productive firms to grow and an important channel for structural change.
    Keywords: industrial policy, public guarantees, public loans, public venture capital, subsidies, tax expenditures
    JEL: L52 L53 O25 O38 Q58
    Date: 2022–05–03

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