nep-tid New Economics Papers
on Technology and Industrial Dynamics
Issue of 2017‒04‒23
fourteen papers chosen by
Fulvio Castellacci
Universitetet i Oslo

  1. How Antitrust Enforcement Can Spur Innovation By Watzinger, Martin; Fackler, Thomas A.; Nagler, Markus
  2. R&D heterogeneity and implications for growth By Sigurd Galaasen; Alfonso Irarrazabal
  3. What Drives Differences in Management? By Nicholas Bloom; Erik Brynjolfsson; Lucia Foster; Ron S. Jarmin; Megha Patnaik; Itay Saporta-Eksten; John Van Reenen
  4. The Infant Industry Argument: Tariffs, NTMs and Innovation By Igor Bagayev; Ronald B. Davies
  5. Drivers of productivity in Vietnamese SMEs: The role of management standards and innovation By Elisa Calza; Micheline Goedhuys; Neda Trifkovic
  6. What determines misallocation in innovation? A study of regional innovation in China By Li, Hao-Ching; Lee, Wen-Chieh; Ko, Bo-Ting
  7. An Entropy-Constrained Model of Induced Technical Change with a Single Innovation Possibility Frontier By Jangho Yang
  8. Achieving Innovation Without Formal R&D: Philippine Case Study of Garment Firms By Rosellon, Maureen Ane D.; Del Prado, Fatima Lourdes E.
  9. A thresholds analysis of growth, convergence and structural change in the EU: insights for Portugal By Joao Sousa Andrade; Marta Simões; Adelaide Duarte
  10. Technology lock-in with horizontal and vertical innovations through limited R&D spending By Anton Bondarev; Bondarev Anton; Greiner Alfred
  11. Regional Policy and Industrial Relocation in China: A Panel Data Analysis By Robert Alexander; Rui-cong Sang; Sajid Anwar
  12. Structural Reforms, Innovation and Economic Growth By Kosuke Aoki; Naoko Hara; Maiko Koga
  13. Exploring the relationship between technological improvement and innovation diffusion: An empirical test By JongRoul Woo; Christopher L. Magee
  14. Competition Policy vs. Industrial Policy as a Growth Strategy By Tatsuo Hatta

  1. By: Watzinger, Martin (University of Munich); Fackler, Thomas A. (University of Munich); Nagler, Markus (University of Munich)
    Abstract: We study the 1956 consent decree against the Bell System to investigate whether patents held by a dominant firm are harmful for innovation and if so, whether compulsory licensing can provide an effective remedy. The consent decree settled an antitrust lawsuit that charged Bell with having foreclosed the market for telecommunications equipment. The terms of the decree allowed Bell to remain a vertically integrated monopolist in the telecommunications industry, but as a remedy, Bell had to license all its existing patents royalty-free. Thus, the path-breaking technologies developed by the Bell Laboratories became freely available to all US companies. We show that in the first five years compulsory licensing increased follow-on innovation building on Bell patents by 17%. This effect is driven mainly by young and small companies. Yet, innovation increased only outside the telecommunications equipment industry. The lack of a positive innovation effect in the telecommunications industry suggests that market foreclosure impedes innovation and that compulsory licensing without structural remedies is ineffective in ending it. The increase of follow-on innovation by small and young companies is in line with the hypothesis that patents held by a dominant firm act as a barrier to entry for start-ups. We show that the removal of this barrier increased long-run U.S. innovation, corroborating historical accounts.
    Keywords: ;
    JEL: O30 O33 O34 K21 L40
    Date: 2017–03–25
  2. By: Sigurd Galaasen; Alfonso Irarrazabal
    Abstract: This paper quantifies the determinants of R&D investment heterogeneity and its implications for growth. We estimate a Schumpeterian growth model with heterogeneous firms, à la Lentz and Mortensen (2008), in which firms differ with respect to innovation efficiency. Using observations on size, productivity, and R&D expenditures from a panel of Norwegian manufacturing firms we find that the model has a good fit to the data. In particular, it fits the distribution of R&D investment (mean, dispersion and skewness) as well as the negative correlation between research intensity and size. Moreover, the model generates firm-level investment responses to R&D subsidies that are in line with micro evidence from a natural experiment. The model estimates imply that a large part of aggregate productivity growth (72 percent) is the result of the market directing R&D resources to the more innovative firms. Finally, we study the link between firm heterogeneity and R&D subsidies, and show that the growth effects of subsidies depend crucially on how the policy influences the equilibrium distribution of firms. We address these questions by estimating an equilibrium model of firm-level innovation and growth. We adopt the micro-macro framework growth in Klette and Kortum (2004). Using observations on size, productivity and R&D expenditures from a panel of Norwegian manufacturing firms, we estimate an extended version of the Klette-Kortum model, developed in Lentz and Mortensen (2008). The model estimates imply that a large part of aggregate productivity growth (72 percent) is the result of the market directing R&D resources to the more innovative firms. Using the estimated model we also show that the growth effects of R&D subsidies depend crucially on how the policy influences the equilibrium distribution of firms.
    Keywords: Norway, Growth, General equilibrium modeling
    Date: 2016–07–04
  3. By: Nicholas Bloom; Erik Brynjolfsson; Lucia Foster; Ron S. Jarmin; Megha Patnaik; Itay Saporta-Eksten; John Van Reenen
    Abstract: Partnering with the Census we implement a new survey of “structured” management practices in 32,000 US manufacturing plants. We find an enormous dispersion of management practices across plants, with 40% of this variation across plants within the same firm. This management variation accounts for about a fifth of the spread of productivity, a similar fraction as that accounted for by R&D, and twice as much as explained by IT. We find evidence for four “drivers” of management: competition, business environment, learning spillovers and human capital. Collectively, these drivers account for about a third of the dispersion of structured management practices.
    JEL: L2 M2
    Date: 2017–03
  4. By: Igor Bagayev; Ronald B. Davies
    Abstract: One rationale for the infant industry argument is that, by protecting domestic firms from foreign competition, this increases rents and investment in innovation and other growth enhancing measures. Using data on 4,750 firms across 13 developing countries, we examine whether protection via tariffs or non-tariff measures (SPS and TBT specifically) increase innovation in either products or processes. We find no such evidence; instead we find a small negative impact of protection, particularly tariffs and TBTs, on innovation.
    Keywords: Non-tariff measures; Technical barriers to trade; Innovation; Infant industry
    JEL: F13 H57 F12
    Date: 2017–01
  5. By: Elisa Calza; Micheline Goedhuys; Neda Trifkovic
    Abstract: Using a rich panel dataset of SMEs active in the manufacturing sector in Viet Nam, this paper investigates the drivers of firm productivity, focusing on the role played by international management standards certification. We develop and test the hypothesis that, controlling for technological innovation (product and process) and other variables related to technological capabilities, international standards are still conducive to higher productivity, through improved management practices associated with their adoption. In line with the requirement of continuous improvement implied by most international standards, the main findings show that the possession of an internationally recognized standard certificate leads to significant productivity premium. We further investigate the relationship between technological innovation and standard adoption. We find that the likelihood of certificate adoption is higher when firms implement technological innovations and that the effect of certification on productivity is particularly strong for firms with technological innovation.
    Date: 2017
  6. By: Li, Hao-Ching; Lee, Wen-Chieh; Ko, Bo-Ting
    Abstract: This paper sounds an alarm about disparate efficiencies among China’s regions in the allocation of innovation inputs. A theoretical measure of misallocation is adopted to gauge the distortions that exacerbate the inefficiency of resource allocations across geographic innovation units; these units’ usage of innovative inputs reveals the level of misallocations prevalent within the Chinese economy. The measure of innovation misallocation is computed by utilizing a micro dataset based on information from the China Statistical Yearbook for Science and Technology (CSYST) from 1999 to 2012. In addition, this paper probes the factors that co-move with China’s innovation resource misallocations. We find that, although an advanced financial market is beneficial to innovation efficiency in China, both the government’s extensive development of transportation infrastructure and the preferential treatment given to state-owned enterprises (SOEs) and foreign-invested enterprises (FIEs) negatively correlate with innovation efficiency. We conclude that emerging economies that are experiencing R&D input expansion, such as China, should be cautious in ensuring efficient resource allocations.
    Keywords: Resource misallocation; Innovation efficiency; Financial market; Infrastructure investment; Preferential treatment
    JEL: O11 O32 O47
    Date: 2016–05–10
  7. By: Jangho Yang (Department of Economics, New School for Social Research)
    Abstract: This paper proposes an entropy-constrained model of induced technical change (ITC) and estimates the innovation possibilities frontier (IPF) of the OECD countries. The ITC model captures endogenous dynamics of technical progress driven by competition among capitalists to lower production costs. However, its assumption that the typical capitalist is able to maximize cost reductions with complete certainty leads to the implausible result that all capitalists end up being on the technological frontier. The entropy constrained ITC model generalizes the canonical model by allowing the economic agent to have a positive degree of uncertainty. This leads to a qualitatively different result in that the solution of the same maximization problem is not a single point on the frontier but a probability distribution of the possible states of the technological change. The Bayesian inference is then employed and successfully recovers the single IPF of the entropy constrained ITC model for the OECD countries.
    Keywords: Induced technical change, innovation possibilities frontier, entropy constrained model, Bayesian inference
    JEL: C11 C15 D01 D24 D80 O33 O4
    Date: 2017–04
  8. By: Rosellon, Maureen Ane D.; Del Prado, Fatima Lourdes E.
    Abstract: It is widely acknowledged that technological innovations that can come from research and development (R&D) are crucial to industry competitiveness and sustained economic growth. Although R&D remains to be the central focus of policymaking and research, not all firms can afford and do R&D activities. Non-R&D innovation, which is a common economic phenomenon, is often ignored in the policy research arena. Using three case studies, this paper attempts to address this gap. It describes how firms in low-technology sector adapt to fast-changing industry needs and respond to market demands, and generate products and services at a lower cost and within shorter cycle-times without the aid of a traditional R&D program. Findings indicate product or process upgrading even without the presence of a formal R&D unit is possible. To be able to carry out upgrading/innovation activities, it is necessary to hire the appropriate personnel that will undertake specific tasks in order to execute the product specifications required by the clients. Machinery/technology acquisition was also found to be indispensable, as it not only allows the firms to produce the required product but it also makes production cost efficient. Finally, the business strategy or decision of the owner/manager of the firm also plays an important role on the decision to innovate.
    Keywords: Philippines, innovation, non-R&D innovation, non-R&D activities, garments
    Date: 2017
  9. By: Joao Sousa Andrade; Marta Simões; Adelaide Duarte
    Abstract: Following the political turmoil and economic crisis of the 1970s, Portugal enjoyed some years of rapid (and above average) economic growth, accompanying the preparation and accession to the European Union and the participation as a founding member in the Euro Zone. This process, however, stopped since the beginning of the 21st century and this change in the growth rhythm was exacerbated by the Great Recession. From about 1999-2000 onwards, economic growth in Portugal slowed significantly, the non-tradables sector reinforced its role as the anchor of the economy, and productivity growth stagnated or even declined, depending on the productivity measured considered. This paper applies a thresholds regression approach to examine the growth and convergence process of fourteen EU member states over the period 1980-2011. Given the changes in the pattern of production towards a higher weight of the non-tradables sector that Portugal recorded throughout the period under analysis, we use the share of non-tradables as the threshold variable and derive some potential implications from our results for a better understanding of the Portuguese growth and convergence process in preparation for and after accession to the European Union. Threshold analysis allows us to identify those growth determinants that do not have the expected effect on growth and hence determine the specific policy implications for different non-tradables sector weight regimes.
    Keywords: EU14, Growth, Macroeconometric modeling
    Date: 2016–07–04
  10. By: Anton Bondarev; Bondarev Anton; Greiner Alfred (University of Basel)
    Abstract: In this paper we analyze an inter-temporal optimization problem of a representative firm that invests in horizontal and vertical innovations and that faces a constraint with respect to total R&D spending. We find that there can exist two different steady-states of the economy when the amount of research spending falls short of an endogenously determined threshold: one with higher productivities and less new technologies being developed, and the other with more technoligies being created and lower productivities. But, for a higher amount of R&D spending the steady-state becomes uniqueand the firm produces the whole spectrum of available technologies. Thus, a lock-in effect may arise that, however, van be overcome by raising R&D spending sufficiently.
    Keywords: Multiple steady-states, lock-in, innovations, R&D constraint, optimal control
    JEL: C61 D92 O32
    Date: 2017
  11. By: Robert Alexander; Rui-cong Sang; Sajid Anwar
    Abstract: An important part of Chinese economic development, especially of the Eastern Coastal provinces, has been the relocation of industry from Western countries. More recently, the Chinese Government has encouraged the development of Central, Western and Northern provinces and local governments in these regions have been making efforts to attract investment from companies from Eastern China. We investigate the factors that drive the investment decisions of such companies. Using data on the investment decisions of 498 listed Chinese companies headquartered in the provinces of Guangdong, Shanghai, Zhejiang and Jiangsu over the period 2000-2010, we estimate a Probit model to investigate the factors that drive their investment decisions. The model controls for market factors and firm-specific factors, We find strong positive effects on investment from the provision of both transport and communications infrastructure and strong negative effects from a higher proportion of state-owned enterprises and higher local government administrative expenses but no significant effect from taxation.
    Keywords: China, Regional modeling, Developing countries
    Date: 2016–07–04
  12. By: Kosuke Aoki (University of Tokyo); Naoko Hara (Bank of Japan); Maiko Koga (Bank of Japan)
    Abstract: This paper constructs a growth model of the distance from the world technology frontier to argue that firms' incentives to innovate and the government's decision on implementing reforms can be mutually reinforcing. This complementarity may, however, result in a country falling into a self-perpetuating low productivity trap. Certain types of structural change, initiated either by the private sector or by the government, can help the country to escape from this trap.
    Keywords: Economic Growth; Economic Reform; Productivity Gap
    JEL: O11 O43
    Date: 2017–04–13
  13. By: JongRoul Woo; Christopher L. Magee
    Abstract: It is now clear that different technological domains have significantly different rates of performance improvement. Theoretically, such differing rates should influence the relative rate of diffusion of the products since improvement in performance during the diffusion process increases the desirability of the product diffusing. However, there has not been a broad empirical attempt to examine this effect and to explain the underlying cause. Therefore, this paper reviews the theoretical basis and focuses upon empirical tests of this effect and its underlying cause. The results for 18 different diffusing products show the expected relationship-faster diffusion for more rapidly improving products- between technological improvement and diffusion with strong statistical significance. The empirical examination also demonstrates that performance improvement does not slow down in the latter parts of diffusion when penetration does slow down. This finding is also consistent with theories of diffusion based upon utility but not with ideas that explain performance increases as due to competition among firms.
    Date: 2017–04
  14. By: Tatsuo Hatta
    Abstract: This paper examines the rationale behind industrial policy and competition policy as growth strategies, and shows that competition policy, rather than industrial policy, generated the rapid economic growth in post-war Japan. It also reveals that Japan's growth rate was lowered from the mid-1970s due to newly introduced industrial policies and paucity of further competition policy. The current Abe government recognises the need for competition policies in Japan to recover from the low-growth period. The paper describes the types of competition policy carried out under Abenomics, especially in strategic special economic zones.
    Keywords: Abenomics, completion policy, industrial policy, growth strategy, trade, liberalisation, privatisation
    Date: 2017–03

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