nep-tid New Economics Papers
on Technology and Industrial Dynamics
Issue of 2018‒08‒27
ten papers chosen by
Fulvio Castellacci
Universitetet i Oslo

  1. Foreign Competition and Domestic Innovation: Evidence from U.S. Patents By David Autor; David Dorn; Gary Pisano; Gordon Hanson; Pian Shu
  2. Is Automation Labor-Displacing? Productivity Growth, Employment, and the Labor Share By David Autor; Anna Salomons
  3. Should the Government Subsidize Innovation or Automation? By Chu, Angus C.; Cozzi, Guido; Furukawa, Yuichi; Liao, Chih-Hsing
  4. Patents to Products: Innovation and Firm Performance By David Argente; Douglas Hanley; Salome Baslandze; Sara Moreira
  5. Cascading Innovation By Vasco Carvalho; Mirko Draca
  6. Directed Technical Change in Clean Energy: Evidence from the Solar Industry By Lööf, Hans; Perez, Luis; Baum, Christopher F
  7. The Role of Industry, Occupation, and Location-Specific Knowledge in the Survival of New Firms By C. Jara Figueroa; Bogang Jun; Edward L. Glaeser; César Hidalgo
  8. Spatial Competition, Innovation and Institutions: The Industrial Revolution and the Great Divergence By Klaus Desmet; Avner Greif; Stephen Parente
  9. The Impact of Trade Liberalization on Firm Productivity and Innovation By Pian Shu; Claudia Steinwender
  10. On Average Establishment Size across Sectors and Countries By Pedro Bento; Diego Restuccia

  1. By: David Autor (Massachusetts Institute of Technology); David Dorn (University of Zurich); Gary Pisano; Gordon Hanson (University of California, San Diego); Pian Shu (Georgia Institute of Technology)
    Abstract: The competitive shock to the U.S. manufacturing sector spurred by rising China import competition could either catalyze or stifle innovation. Using three distinct sources of variation to identify rising trade exposure, we provide a causal analysis of the effect of surging import competition on U.S. innovative activities. Applying a novel internet-based matching algorithm to map all U.S. utility patents granted by 2013 to firm-level data, and carefully accounting for the shifting concentration of patenting activity across sectors, we document a robust, negative impact of rising Chinese competition on firm-level and technology class-level patent production. Accompanying this fall in innovation, global employment, sales, profitability, and R&D expenditure all decline within trade-exposed firms. The trade-induced contraction along all margins of adjustment and for all measures of valuation suggest that the primary response of firms to greater import competition is to scale back their global operations.
    Date: 2018
  2. By: David Autor; Anna Salomons
    Abstract: Many technological innovations replace workers with machines, but this capital-labor substitution need not reduce aggregate labor demand because it simultaneously induces four countervailing responses: own-industry output effects; cross-industry input–output effects; between-industry shifts; and final demand effects. We quantify these channels using four decades of harmonized cross-country and industry data, where we measure automation as industry-level movements in total factor productivity (TFP) that are common across countries. We find that automation displaces employment and reduces labor's share of value-added in the industries in which it originates (a direct effect). In the case of employment, these own-industry losses are reversed by indirect gains in customer industries and induced increases in aggregate demand. By contrast, own-industry labor share losses are not recouped elsewhere. Our framework can account for a substantial fraction of the reallocation of employment across industries and the aggregate fall in the labor share over the last three decades. It does not, however, explain why the labor share fell more rapidly during the 2000s
    JEL: D33 J23 O33 O57
    Date: 2018–07
  3. By: Chu, Angus C.; Cozzi, Guido; Furukawa, Yuichi; Liao, Chih-Hsing
    Abstract: This study introduces automation into a Schumpeterian model to explore the different effects of R&D and automation subsidies. R&D subsidy increases innovation and decreases the share of automated industries with an overall inverted-U effect on economic growth. Automation subsidy decreases innovation and increases the share of automated industries also with an inverted-U effect on growth. Calibrating the model to US data, we find that the current level of R&D (automation) subsidy is above (below) the growth-maximizing level. Simulating transition dynamics, we find that changing R&D (automation) subsidy to its growth-maximizing level causes a welfare gain of 3.8% increase in consumption.
    Keywords: automation, innovation, economic growth
    JEL: O3 O4
    Date: 2018–08
  4. By: David Argente (University of Chicago); Douglas Hanley (University of Pittsburgh); Salome Baslandze (EIEF - Einaudi Institute for Economics a); Sara Moreira (Northwestern University)
    Abstract: What do standard patent-based innovation measures capture? Using the unique match of firms’ patenting activities and their product introduction in the con sumer goods sector, we study the relationship between patents and innovation. Our current results indicate that both at the extensive margin and the intensive margin, patents (and citations-adjusted patents) are strongly associated with higher product introduction as well as product destruction and hence larger re allocation at the firm level. We provide additional evidence that this association is at least partly causal. Firms that are patenting also introduce products of higher quality, enjoy larger sales and hold more diverse set of products. We disentangle the effect of patents on product versus process innovation, distinction that has been hard to measure from standard data sources. We find that the effect of patenting on product creation is larger for smaller firms, while the process innovation seems more pronounced in larger firms. Textual analysis of patents and product descriptions sheds additional light on the exact transmission of innovation embedded in the patents into specific product creation.
    Date: 2018
  5. By: Vasco Carvalho (U of Cambridge); Mirko Draca (University of Warwick)
    Abstract: US government spending since World War II has been characterized by large investments in defense-related high-tech goods and services and R&D. In turn, this means that the Department of Defense (DoD) has had a large role in funding corporate innovation in the US. This paper (i) quantifies the impact of military procurement spending on corporate innovation by publicly listed firms and (ii) shows that DoD impact on innovation was not limited to the winners of defense contracts but instead cascaded through the supply chainof DoD contractors via indirect market size effects, working through firm-to-firm input linkages. We use a database of detailed, historical procurement contracts for all Department of Defense (DoD) prime contracts since 1966. Product-level spending shifts are used as a source of exogenous variation in firm-level procurement receipts. We combine this data with information on the supply chain linkages of publicly listed firms. Our estimates indicate that defense procurement has a positive direct impact on patenting and R&D investment, with an elasticity of approximately 0.07 across both measures of innovation for DoD contractors. Further, our estimates imply that the derived demand for inputs following the award of a DoD contract constitutes a large indirect market size effect for the suppliers of DoD contractors. These indirect market size effects in turn induce innovation cascades working up the supply chain. We find that the elasticity of innovation outcomes to indirect DoD market size shocks is about half of that estimated for direct contractors but affects a much larger number of firms, increasing the effect of defense spending on aggregate innovation by at least 20%.
    Date: 2018
  6. By: Lööf, Hans (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Perez, Luis (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Baum, Christopher F (Department of Economics, Boston College and Department of Macroeconomics)
    Abstract: This paper studies directed technical change and innovation in renewable energy. We construct panel data with micro- and macro observations from nearly 200 countries over a 20-year period and estimate how energy prices, government subsidies, financial markets, spillovers, and path dependence affect patenting in solar thermal and solar cells. Carbon taxes, R&D subsidies to solar technology and own-knowledge stocks have strong, significant positive effects on solar innovations. Subsidies to fossil energy have the adverse effect. We find no compelling evidence that the quality of financial markets and institutions has any consistent impact on the patenting activities of innovators in solar energy.
    Keywords: Directed Technical Change; Climate Change; Innovation; Patents; Solar Energy.
    JEL: O13 O30 P28 P47
    Date: 2018–08–15
  7. By: C. Jara Figueroa; Bogang Jun; Edward L. Glaeser; César Hidalgo
    Abstract: How do regions acquire the knowledge they need to diversify their economic activities? How does the migration of workers among firms and industries contribute to the diffusion of that knowledge? Here we measure the industry, occupation, and location specific knowledge carried by workers from one establishment to the next using a dataset summarizing the individual work history for an entire country. We study pioneer firms–firms operating in an industry that was not present in a region–because the success of pioneers is the basic unit of regional economic diversification. We find that the growth and survival of pioneers increase significantly when their first hires are workers with experience in a related industry, and with work experience in the same location, but not with past experience in a related occupation. We compare these results with new firms that are not pioneers and find that industry specific knowledge is significantly more important for pioneer than non-pioneer firms. To address endogeneity we use Bartik instruments, which leverage national fluctuations in the demand for an activity as shocks for local labor supply. The instrumental variable estimates support the finding that industry related knowledge is a predictor of the survival and growth of pioneer firms. These findings expand our understanding of the micro-mechanisms underlying regional economic diversification events.
    JEL: D22 J24 N1 N16 O1 O14 O15 O5 O54 R12
    Date: 2018–07
  8. By: Klaus Desmet; Avner Greif; Stephen Parente
    Abstract: A market-size-only theory of industrialization cannot explain why England developed nearly two centuries before China. One shortcoming of such a theory is its exclusive focus on producers. We show that once we incorporate the incentives of factor suppliers' organizations such as craft guilds, industrialization no longer depends on market size, but on spatial competition between the guilds' jurisdictions. We substantiate our theory (i) by providing historical and empirical evidence on the relation between spatial competition, craft guilds and innovation, and (ii) by showing the calibrated model correctly predicts the timings of the Industrial Revolution and the Great Divergence.
    JEL: N10 O11 O14 O31 O43
    Date: 2018–06
  9. By: Pian Shu; Claudia Steinwender
    Abstract: This chapter reviews the empirical economics literature on the impact of trade liberalization on firms' innovation-related outcomes. We define and examine four types of shocks to trade flows: import competition, export opportunities, access to imported intermediates, and foreign input competition. Our review reveals interesting heterogeneities at the country and firm levels. In emerging countries, trade liberalization appears to spur productivity and innovation. In developed countries, export opportunities and access to imported intermediates tend to encourage innovation, but the evidence on import competition is mixed, especially for firms in the United States. At the firm level, the positive effects of trade on innovation are more pronounced at the initially more productive firms while the negative effects are more pronounced at the initially less productive firms.
    JEL: F13 F14 O3
    Date: 2018–06
  10. By: Pedro Bento; Diego Restuccia
    Abstract: We construct a new dataset for the average employment size of establishments across sectors and countries from hundreds of sources. Establishments are larger in manufacturing than in services, and in each sector they are larger in richer countries. The cross-country income elasticity of establishment size is remarkably similar across sectors, about 0.3. We discuss these facts in light of several prominent theories of development such as entry costs and misallocation. We then quantify the sectoral and aggregate impact of entry costs and misallocation in an otherwise standard two-sector model of structural transformation with endogenous firm entry and firm-level productivity. We find that observed measures of misallocation account for the entire range of establishment-size differences across sectors and countries and almost 50 percent of the difference in non-agricultural GDP per capita between rich and poor countries.
    Keywords: establishment size, manufacturing, services, distortions, misallocation, productivity.
    JEL: O1 O4 O5 E02 E1
    Date: 2018–08–18

This nep-tid issue is ©2018 by Fulvio Castellacci. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.