nep-tid New Economics Papers
on Technology and Industrial Dynamics
Issue of 2014‒08‒02
four papers chosen by
Fulvio Castellacci
Norsk Utenrikspolitisk Institutt

  1. Information, Misallocation and Aggregate Productivity By Joel M. David; Hugo A. Hopenhayn; Venky Venkateswaran
  2. The unequal effect of India's industrial liberalization on firms' decision to innovate: Do business conditions matter? By Bas M.; Paunov C.
  3. International R&D spillovers and unobserved common shocks By Diego-Ivan Ruge-Leiva
  4. Supplier Innovation in the Presence of Buyer Power By Zhiqi Chen

  1. By: Joel M. David; Hugo A. Hopenhayn; Venky Venkateswaran
    Abstract: We propose a theory linking imperfect information to resource misallocation and hence to aggregate productivity and output. In our setup, firms look to a variety of noisy information sources when making input decisions. We devise a novel empirical strategy that uses a combination of firm-level production and stock market data to pin down the information structure in the economy. Even when only capital is chosen under imperfect information, applying this methodology to data from the US, China, and India reveals substantial losses in productivity and output due to the informational friction. Our estimates for these losses range from 7-10% for productivity and 10-14% for output in China and India, and are smaller, though still significant, in the US. Losses are substantially higher when labor decisions are also made under imperfect information. We find that firms turn primarily to internal sources for information; learning from financial markets contributes little, even in the US.
    JEL: E44 O11 O16 O47
    Date: 2014–07
  2. By: Bas M.; Paunov C. (UNU-MERIT)
    Abstract: This paper examines the heterogeneous impact of industrial liberalization policy, the dismantling of the License Raj in India, on firms innovation performance. Our results show that larger and more productive firms in liberalized industries were more likely to take up RD while the smallest and least efficient firms were less likely to do so. We also show that this inequality of effects was strongest in economically less developed Indian states and where financial development and the knowledge base are weaker. This suggests business conditions shape heterogeneous impacts of liberalization policies to the advantage of initially larger and more efficient firms.
    Keywords: Firm Behavior: Empirical Analysis; Industrialization; Manufacturing and Service Industries; Choice of Technology; Industrial Policy; Innovation and Invention: Processes and Incentives;
    JEL: O25 O14 O31 D22
    Date: 2014
  3. By: Diego-Ivan Ruge-Leiva
    Abstract: This paper investigates the effects of the domestic and foreign R&D weighted by bilateral imports on productivity accounting for the heterogeneous impact of unobserved micro and macroeconomic common shocks, which are modeled in a multifactor error structure. Using a panel of 50 economies from 1970-2011, I find that when unobserved common shocks are not regarded, as has been done by the literature in this area, estimates of domestic R&D and foreign R&D might be biased and inconsistent. Once unobserved common shocks are accounted for, by allowing for heterogeneous technology coefficients, significant estimates become more sizable, consistent and not seriously biased in most cases. However, these estimates might be capturing not only returns to domestic R&D and trade-related knowledge spillovers, but also unobserved common spillovers and other effects. This indicates that knowledge spillovers and effects of unknown form cannot be easily separated. Therefore, unobserved common shocks should be considered when estimating returns to domestic R&D and international R&D spillovers.
    Keywords: Productivity, Spillovers, Cross-Section Dependence, Unobserved Common Shocks.
    Date: 2014–07
  4. By: Zhiqi Chen (Department of Economics, Carleton University)
    Abstract: A theoretical framework is constructed to derive general conditions under which increased buyer power weakens or strengthens a supplier’s incentive to innovate. These conditions are then applied to two sets of specific models: one on product innovation and the other on process innovation. The analysis shows that the effects of buyer power depend on the type of innovation, the source of buyer power, and the channel through which buyer power manifests itself. It identifies circumstances under which an increase in buyer power has a negative, positive or zero impact on innovation. The welfare consequences of buyer power are also investigated.
    Keywords: Buyer power, innovation, product variety
    JEL: L1 L4
    Date: 2014–05–14

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