nep-tid New Economics Papers
on Technology and Industrial Dynamics
Issue of 2017‒12‒03
sixteen papers chosen by
Fulvio Castellacci
Universitetet i Oslo

  1. Strategic conflicts on the horizon: R&D incentives for environmental technologies By Heyen, Daniel
  2. The Nature of Firm Growth By Benjamin W. Pugsley; Petr Sedlacek; Vincent Sterk
  3. Product Diversification in Indian Manufacturing By Johannes Boehm; Swati Dhingra; John Morrow
  4. Production Flexibility, Misallocation and Total Factor Productivity By Burak R. Uras; Ping Wang
  5. Not too close, not too far: testing the Goldilocks principle of ‘optimal’ distance in innovation networks By Fitjar, Rune Dahl; Hubert, Franz; Rodríguez-Pose, Andrés
  6. Relative Prices and Sectoral Productivity By Margarida Duarte; Diego Restuccia
  7. Gender diversity, R&D teams and patents:An application to Spanish firms By Mercedes Teruel; Agustí Segarra-Blasco
  8. Local and Non-Local Knowledge Typologies: Technological Complexity in the Irish Knowledge Space By Adam Whittle
  9. Variety Expansion Redux: A Cross-Country Estimation of the Spillover Effects of Innovation and Imitation By King Yoong Lim; Ali Raza
  10. Knowledge Diffusion, Trade and Innovation Across Countries and Sectors By Cai, Jie; Li, Nan; Santacreu, Ana Maria
  11. Finance and the Misallocation of Scientific, Engineering and Mathematical Talent By Giovanni Marin; Francesco Vona
  12. Temperature Effects on Productivity and Factor Reallocation: Evidence from a Half Million Chinese Manufacturing Plants By Peng Zhang; Olivier Deschenes; Kyle C. Meng; Junjie Zhang
  13. GVC Participation and Economic Transformation: Lessons from three sectors By Marie-Agnes Jouanjean; Julien Gourdon; Jane Korinek
  14. The long-term effect of digital innovation on bank performance: An empirical study of SWIFT adoption in financial services By Scott, Susan V.; Van Reenen, John; Zachariadis, Markos
  15. Innovation, Finance, and Economic Growth: An Agent-Based Approach By Giorgio Fagiolo; Daniele Giachini; Andrea Roventini
  16. Spatial Linkage of Technological Progress, ICT base and Economic Output in CLMV Region By Chhorn, Theara

  1. By: Heyen, Daniel
    Abstract: Technological innovation is a key strategy for tackling climate change and other environmental problems. The required R&D expenditures however are substantial and fall on self-interested countries. Thus, the prospects of successful innovation critically depend on innovation incentives. This paper focuses on a specific mechanism for strategic distortions in this R&D game. In this mechanism, the outlook of future conflicts surrounding technology deployment directly impacts on the willingness to undertake R&D. Apart from free-riding, a different deployment conflict with distortive effects on innovation can occur. Low deployment costs and heterogeneous preferences might give rise to 'free-driving' (Weitzman 2015): The country with the highest preference for technology deployment, the free driver, may dominate the deployment outcome to the detriment of others. The present paper develops a simple two stage model for analysing how technology deployment conflicts, free-riding and free-driving, shape R&D incentives of two asymmetric countries. The framework gives rise to rich findings, underpinning the narrative that future deployment conflicts extend to the R&D stage. While the outlook of free-riding unambiguously weakens innovation incentives, the findings for free-driving are more complex, including the possibility of excessive R&D as well as incentives for counter-R&D.
    Keywords: Environmental innovation; R&D game; innovation incentives; externalities; strategic conflicts; climate engineering; geoengineering; free driver externality
    JEL: D62 H41 O31 Q54 Q55
    Date: 2016–10–25
  2. By: Benjamin W. Pugsley (University of Notre Dame); Petr Sedlacek (Centre for Macroeconomics (CFM); University of Oxford); Vincent Sterk (Centre for Macroeconomics (CFM); University College London (UCL))
    Abstract: Only half of all startups survive past the age of ve and surviving businesses grow at vastly dierent speeds. Using micro data on employment in the population of U.S. businesses, we estimate that the lion's share of these differences is driven by ex-ante heterogeneity across firms, rather than by ex-post shocks. We embed such heterogeneity in a firm dynamics model and study how ex-ante differences shape the distribution of firm size, "up-or-out" dynamics, and the associated gains in aggregate output. "Gazelles" - a small subset of startups with particularly high growth potential - emerge as key drivers of these outcomes. Analyzing changes in the distribution of ex-ante firm heterogeneity over time reveals that gazelles are driven towards extinction, creating substantial aggregate losses.
    Keywords: Firm dynamics, Startups, Macroeconomics, Big data
    JEL: D22 E23 E24
    Date: 2017–11
  3. By: Johannes Boehm; Swati Dhingra; John Morrow
    Abstract: The presence of global value chains challenges the neoclassical idea of the firm since it implies firms are not monolithic but are rather interdependent on the larger economic environment. Examining establishments, the smallest units of production within firms, sheds light on the microeconomic incentives determining the location of production and whether a firm produces a good or sources it. Most work on multiproduct firms looks at developed countries, but constraints on firm growth are greater in developing economies. We examine multiproduct establishments in India during a high growth period. Multiproduct establishments made up the bulk of manufacturing production, and their product turnover contributed 28 per cent to net sales growth. Unlike the nineties which witnessed drastic liberalization, establishments in the two-thousands dropped products at rates similar to those for the US. Sales dispersion across products also predicts product addition.
    Keywords: multiproduct firms, product adoption, product diversity
    JEL: L1 L2 M2 O3
    Date: 2017–11
  4. By: Burak R. Uras; Ping Wang
    Abstract: Economy-wide institutional deficiencies causing factor misallocation have been emphasized as essential determinants of aggregate TFP differences. This paper argues that production flexibility at the micro-level is an economic characteristic that should be given priority in TFP aggregation exercises. We investigate a heterogeneous firms model with two distinct notions of flexibility: (i) the firm-specific capacity to optimize over a set of production techniques that serve to organize capital and labor; and, (ii) the industry-specific substitutability between efficient units of capital and labor. We show the presence of a strong interaction between "ability to choose techniques" and "input substitutability": high complementarity at the industry-level amplifies imperfections associated with techniques choice at the firm-level. Using the micro-founded structure, we develop measures for factor, output and technique distortions across a distribution of firms and quantify their TFP effects. For a broad range of U.S. manufacturing industry clusters, technique distortions generate more TFP losses than misallocation resulting from capital and output distortions, with larger TFP gains from removing technique distortions in industries that exhibit high degrees of factor complementarity. Our key quantitative results are robust to outliers, production function specification, mismeasurement and parameterization of the model and are strongly present in developing country datasets.
    JEL: D24 E23 O11 O33
    Date: 2017–10
  5. By: Fitjar, Rune Dahl; Hubert, Franz; Rodríguez-Pose, Andrés
    Abstract: This paper analyses how the formation of collaboration networks affects firm-level innovation by applying the ‘Goldilocks principle’. The ‘Goldilocks principle’ of optimal distance in innovation networks postulates that the best firm-level innovation results are achieved when the partners involved in the network are located at the ‘right’ distance, i.e. ‘not too close and not too far’ from one another, across non-geographical proximity dimensions. This principle is tested on a survey of 542 Norwegian firms conducted in 2013, containing information about firm-level innovation activities and key innovation partners. The results of the ordinal logit regression analysis substantiate the Goldilocks principle, as the most innovative firms are found among those that collaborate with partners at medium levels of proximity for all non-geographical dimensions. The analysis also underscores the importance of the presence of a substitution–innovation mechanism, with geographical distance problems being compensated by proximity in other dimensions as a driver of innovation, while there is no support for a potential overlap–innovation mechanism.
    Keywords: proximities; innovation; collaboration; Goldilocks principle; Norway
    JEL: J50
    Date: 2016–08–17
  6. By: Margarida Duarte; Diego Restuccia
    Abstract: The relative price of services rises with development. A standard interpretation of this fact is that productivity differences across countries are larger in manufacturing than in services. The service sector comprises heterogeneous categories. We document that many disaggregated service categories—such as transportation, communication, and finance—feature a negative income elasticity of relative prices, whereas the relative price of aggregate services is mostly driven by large expenditure categories in housing, health, and education that feature a positive income elasticity of relative prices. We also document a substantial reallocation of expenditures in services from categories with positive income elasticities (traditional services) to categories with negative elasticities (non-traditional services) as income raises. Using an otherwise standard multi-sector development accounting framework extended to include an input-output structure, we find that the cross-country income elasticity of sectoral productivity is large in non-traditional services (1.14), smaller in manufacturing (1.06) and much smaller in traditional services (0.67). We also find that heterogeneity in services has a substantial impact on aggregate productivity and that the input-output structure is important in this assessment.
    JEL: O1 O4
    Date: 2017–10
  7. By: Mercedes Teruel (GRIT, Universitat Rovira i Virgili); Agustí Segarra-Blasco (GRIT, Universitat Rovira i Virgili)
    Abstract: Previous results show that gender diversity increases the probability firms’ innovation. This paper explores the relationship between gender diversity of R&D departments and their capacity to patent. Based on the Spanish Community Innovation Survey between 2004 and 2014, we have applied a two-step procedure control for endogeneity. Our results show that gender diversity affects a firm’s capacity to patent in different manners depending on the coverage of the patents. On the one hand, gender diversity affects OEPM patents negatively, while the impact becomes positive for patents with an international coverage (EPO, USPTO, or PCT). This analysis is relevant in order reveal the dual effect of gender diversity within R&D teams on their capacity to process and register patents.
    Keywords: gender diversity, patent generation
    JEL: O30 O31 J16
    Date: 2017–11
  8. By: Adam Whittle
    Abstract: It is now commonplace to assume that the production of economically valuable knowledge is central to modern theories of growth and regional development. At the same time, it is also well known that not all knowledge is equal, and that the spatial and temporal distribution of knowledge is highly uneven. Combing insights from Evolutionary Economic Geography (EEG) and Economic Complexity (EC) the primary aim of this paper is to investigate whether more complex knowledge is generated by local of non-local (foreign) firms. From this perspective, a series of recent contributions have highlighted the role of foreign firms in enacting structural transformation, but such an investigation has yet to account for the complexity of the knowledge produced. Exploiting information contained within a recently developed Irish patent database our measure of complexity uses a modified bipartite network to link the technologies produced within regions, to their country of origin i.e. local or non-local. Results indicate that the most complex technologies tend to be produced in a few diverse regions. For Ireland, our results indicate that the most complex technologies tend to be produced in a few diverse regions. In addition, we find that the majority of this complex knowledge is generated in technology classes where the share of foreign activity is greater than local firms. Lastly, we generate an entry model to compute the process of complex regional diversification. Here the focus is on how regions develop a comparative advantage in a technological domains more complex than those already present in that region. As such, we focus our attention only on those technologies with the highest complexity values, as these technologies are said to underpin the European UnionÕs Smart Specialisation thesis.
    Keywords: Relatedness, Technological Complexity, Diversification, Knowledge Space, Smart Specialisation, Ireland
    Date: 2017–11
  9. By: King Yoong Lim; Ali Raza
    Abstract: The complex interactions between imitation and innovation are frequently examined in endogenous growth models: imitation serves as a stepping stone to innovation; innovation exhibits spillover to imitation; for both, the accumulative stock provides a standing-on-shoulders e¤ect to further growth. However, empirical estimation of these concepts in true Romerian product variety interpretation is scarce. This is due to variety expansion often being treated only as imitative activities in the relatively popular Schumpeterian interpretation to innovation. Using an overlapping generations framework that models innovation and imitation as semi-symmetric ideas production functions, this paper estimates these spillover e¤ects using cross-country data by treating each 4-digit ISIC industries as a separate industrial variety. We find robust and significant estimates for all three spillover effects, with both imitation and innovation being complementary to each other. In addition, the growth regressions also reaffirm the significance of product variety expansion as a source of innovation-driven growth.
    Keywords: Growth, Ideas Production, Imitation, Innovation, Product Variety Expansion
    JEL: O11 O40 O47
    Date: 2017
  10. By: Cai, Jie (Shanghai University of Finance and Economics); Li, Nan (International Monetary Fund); Santacreu, Ana Maria (Federal Reserve Bank of St. Louis)
    Abstract: We develop and quantify a multi-country and multi-sector endogenous growth model in which comparative advantage and the stock of knowledge are endogenously determined by innovation and knowledge diffusion. We quantify the effect of trade liberalization on innovation, comparative advantage and welfare in a framework that features intersectoral production and knowledge linkages that are consistent with the data. A reduction in trade frictions induces a reallocation of innovation and comparative advantage across sectors: innovation reallocates towards sectors that experience larger increases in comparative advantage, and comparative advantage reallocates towards sectors with stronger knowledge spillovers. Furthermore, knowledge spillovers amplify the effect of a trade liberalization as countries and sectors benefit from foreign technology. In contrast to standard one sector models of trade and innovation without knowledge spillovers, we find significant dynamic gains from trade. These gains are mainly driven by innovation and knowledge diffusion across sectors and countries.
    Keywords: Technology Diffusion; R&D; Patent Citations; International Trade
    JEL: F12 O33 O41 O47
    Date: 2017–10–23
  11. By: Giovanni Marin (University of Urbino "Carlo Bo"; SEEDS, Ferrara, Italy.); Francesco Vona (OFCE, Sciences Po Paris, France)
    Abstract: The US financial sector has become a magnet for the brightest graduates in the science, technology, engineering and mathematical fields (STEM). We provide quantitative bases for this well-known fact and illustrate its consequences for the productivity growth in other sectors over the period 1980-2014. First, we find that the share of STEM talents grew significantly faster in finance than in other key STEM sectors such as high-tech, and this divergent pattern has been more evident for STEM than for general skills and more pronounced for investment banking. Second, this trend did not reverse after the Great Recession, and a persistent wage premium is found for STEM graduates working in finance and especially in typical financial jobs at the top of the wage distribution. Third, the brain drain of STEM talents into finance has been associated with a cumulative loss of labor productivity growth of 6.6% in the manufacturing sectors. Our results suggest that increasing the number of STEM graduates may not be enough to reignite sluggish economic growth without making their employment in finance more costly.
    Keywords: Finance, skills, STEM workers, brain drain, productivity
    JEL: Q52 Q48 H23 D22
    Date: 2017–11–22
  12. By: Peng Zhang; Olivier Deschenes; Kyle C. Meng; Junjie Zhang
    Abstract: This paper uses detailed production data from a half million Chinese manufacturing plants over 1998-2007 to estimate the effects of temperature on firm-level total factor productivity (TFP), factor inputs, and output. We detect an inverted U-shaped relationship between temperature and TFP and show that it primarily drives the temperature-output effect. Both labor- and capital- intensive firms exhibit sensitivity to high temperatures. By mid 21st century, if no additional adaptation were to occur, we project that climate change will reduce Chinese manufacturing output annually by 12%, equivalent to a loss of $39.5 billion in 2007 dollars. This implies substantial local and global economic consequences as the Chinese manufacturing sector produces 32% of national GDP and supplies 12% of global exports.
    JEL: L60 O14 O44 Q54 Q56
    Date: 2017–11
  13. By: Marie-Agnes Jouanjean; Julien Gourdon; Jane Korinek
    Abstract: Integration into Global value chains (GVCs) provides opportunities for economic growth and development. However, the nature and extent of these opportunities differ across countries and sectors, and participation in GVCs can support processes of economic transformation in a variety of ways depending on the type of GVC. This paper explores some of the linkages between GVC participation and economic transformation at the sectoral level, with a view to assisting countries in assessing the various policy options for maximising their comparative advantages and their benefits from GVC participation. Three aspects of the relationship between GVC participation – defined as the use of foreign intermediates and integration into international production networks – and economic transformation are explored: i) sectoral differences in upgrading dynamics; ii) the role of services; and iii) resilience to external shocks. A range of qualitative and empirical approaches are used to explore and test the robustness of the relationship for three sectors presenting different characteristics in terms of their trade dynamics and links with economic transformation: mining and quarrying; motor vehicles, trailers and semi-trailers; and transport and storage services.
    Keywords: Developing Countries, Economic Transformation, Global Value Chain, Multi-Regional Input Output, Network Analysis, Sectoral Analysis, Services; Resilience, Upgrading
    JEL: F14
    Date: 2017–11–27
  14. By: Scott, Susan V.; Van Reenen, John; Zachariadis, Markos
    Abstract: We examine the impact on bank performance of the adoption of SWIFT, a network-based technological infrastructure for worldwide interbank telecommunication. We construct a new longitudinal dataset of 6,848 banks in 29 countries in Europe and the Americas with the full history of adoption since SWIFT’s initial operations in 1977. Our results suggest that the adoption of SWIFT (i) has large effects on profitability in the long-term; (ii) is greater for small than for large banks; and (iii) exhibits significant network effects on performance. We use an in-depth field study to better understand the mechanisms underlying the effects on profitability.
    Keywords: Technology adoption; bank performance; financial services; network innovation; SWIFT
    JEL: F3 G3
    Date: 2017–03
  15. By: Giorgio Fagiolo; Daniele Giachini; Andrea Roventini
    Abstract: This paper extends the endogenous-growth agent-based model in Fagiolo and Dosi (2003) to study the finance-growth nexus. We explore industries where firms produce a homogeneous good using existing technologies, perform R&D activities to introduce new techniques, and imitate the most productive practices. Unlike the original model, we assume that both exploration and imitation require resources provided by banks, which pool agent savings and finance new projects via loans. We find that banking activity has a positive impact on growth. However, excessive financialization can hamper growth. Indeed, we find a significant and robust inverted-U shaped relation between financial depth and growth. Overall, our results stress the fundamental (and still poorly understood) role played by innovation in the finance-growth nexus.
    Keywords: Agent-based Models, Innovation, Exploration vs. Exploitation, Endogenous Growth, Banking Sector, Finance-Growth Nexus
    Date: 2017–11–24
  16. By: Chhorn, Theara
    Abstract: Rising technological progress and innovation, ICT base toward the era of modernization and globalization in developing countries has driven economic into the new structure of transitional development. The paper examines spatial linkage between technological progress and economic output in CLMV region during the observation period of 1995 to 2016. The conventional approach overcome simple RE and FE estimation, say FGLS and MLE-GLS reveals the consistency of empirical outcomes. It yields the crucial role of technological progress, as the proxy of internet server connection and ICT, computer import products in boosting the structure of economic output which generate to the growth rate in CLMV region. The findings suggest policy maker in exerting policy toward climate investment and trade to bring the country into path of facilitating flows of capitals, goods and service, particularly the business structure in line with adopting the technological innovation.
    Keywords: Technological Progress, Economic Output, Economic Significance Analysis, CLMV
    JEL: C3 C33 O3
    Date: 2017–09

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