nep-tid New Economics Papers
on Technology and Industrial Dynamics
Issue of 2019‒02‒25
eight papers chosen by
Fulvio Castellacci
Universitetet i Oslo

  1. From "destructive creation" to "creative destruction": Rethinking Science, Technology and innovation in a global context By Soete, Luc
  2. Job creation in Colombia vs the U.S.: “up or out dynamics” meets “the life cycle of plants”. By Marcela Eslava; John C. Haltiwanger; Alvaro Pinzón
  3. Policy Distortions and Aggregate Productivity with Endogenous Establishment-Level Productivity By Jose-Maria Da-Rocha; Diego Restuccia; Marina M. Tavares
  4. Agglomeration Economies and the Firm TFP: Different Effects across Industries By Martin Gornig; Alexander Schiersch
  5. Do young innovative companies create more jobs? Evidence from Pakistani textile firms By Wadho, Waqar; Goedhuys, Micheline; Chaudry, Azam
  6. Immigrant Entrepreneurs and Innovation in the U.S. High-Tech Sector By J. David Brown; John S. Earle; Mee Jung Kim; Kyung Min Lee
  7. Company Profits in Italy By Massimo Del Gatto; Fadi Hassan; Gianmarco I.P. Ottaviano; Fabiano Schivardi
  8. The role of financial constraints on labour share developments: macro- and micro-level evidence By Elena Crivellaro; Aikaterini Karadimitropoulou

  1. By: Soete, Luc (UNU-MERIT)
    Abstract: There is general agreement amongst economists today that Science, Technology and Innovation (STI) have dramatically contributed to individual countries' economic growth and welfare. Another, 21st Century way of looking at the old Solow residual discussion is to observe that STI has been the core factor behind the intrinsic characteristic of capitalism to accumulate indefinitely. Doing so STI has also created the seeds of the current pattern of unsustainable global development. Once the major driving forces of countries' international, technological competitiveness are taken into account, "smart", innovation-led growth and "sustainable", green growth appear in contradiction with each other. The paper makes the case for "smart" no longer be leading in STI policy but rather "sustainability". Four priority "directions" are suggested: radical improvements in eco-productivity reducing the energy and emissions intensity of production, distribution and consumption; biomimicry as sustainable product innovation guiding principle; the use of AI and big data as "sustainable purpose technologies" assisting and complementing growth in eco-productivity and green product development and design; and finally regulatory and taxing policies addressing over-consumption, including advertising. In so far as sustainability and inclusiveness are also in contradiction with each other, there is also need for specific proactive, integrated "eco-social" STI policies. Global sustainable development will only be successful if it supported by all classes in society. While for high income classes priority can be given to increased taxation, for low income classes there is a need for a more comprehensive green new deal that should include house retrofitting and social energy tariffs making the energy transition cheap. Finally the research community itself should put full priority to exploit fully the digital substitution advantages of research networking, rather than air travel.
    Keywords: Science, Technology and Innovation, Smart Growth, Sustainable Development, Inclusiveness.
    JEL: M48 O30 O33 O38 P48
    Date: 2019–01–10
  2. By: Marcela Eslava; John C. Haltiwanger; Alvaro Pinzón
    Abstract: There is growing consensus that a key difference between the U.S. and developing economies is that the latter exhibit slower employment growth over the life cycle of the average business. At the same time, the rapid post entry growth in the U.S. is driven by an “up or out dynamic”. We track manufacturing establishments in Colombia vs. the US and find that slower average life cycle growth in Colombia is driven by a less enthusiastic contribution of extraordinary growth plants and less dynamic selection of young underperforming plants. As a consequence, the size distribution of non-micro plants exhibits more concentration in small-old plants in Colombia, both in unweighted and employment-weighted bases. These findings point to a shortage of high-growth entrepreneurship and a relatively high likelihood of long-run survival for small, likely unproductive plants, as two key elements at the heart of the development problem. An extreme concentration of resources in micro plants is the other distinguishing feature of the Colombian manufacturing sector vis a vis the US.
    JEL: O14 O47
    Date: 2019–02
  3. By: Jose-Maria Da-Rocha; Diego Restuccia; Marina M. Tavares
    Abstract: What accounts for differences in output per capita and total factor productivity (TFP) across countries? Empirical evidence points to resource misallocation across heterogeneous production units as an important factor. We study misallocation in a general equilibrium model of establishment productivity where the distribution of productivity is characterized in closed form and responds to the same policy distortions that create misallocation. In this framework, policy distortions not only misallocate resources across a given set of productive units (static effect), but also create disincentives for productivity improvement thereby altering the productivity distribution and equilibrium prices (dynamic effect), further lowering aggregate output and TFP. The dynamic effect is substantial contributing to a doubling of the static misallocation effect. Reducing the dispersion in distortions by 25 percentage points to the level of the U.S. benchmark economy implies an increase in relative aggregate output of 123 percent, where 54 percent arises from factor misallocation (static effect).
    Keywords: distortions, misallocation, investment, endogenous productivity, establishments.
    JEL: O11 O3 O41 O43 O5 E0 E13 C02 C61
    Date: 2019–02–07
  4. By: Martin Gornig; Alexander Schiersch
    Abstract: This paper analyzes the effect of agglomeration economies on firms’ total factor productivity. We propose the use of a control function approach to overcome the econometric issue inherent to the two-stage approach commonly used in the literature. Estimations are conducted separately for four industry groups, defined by technological intensity, to allow for non-uniform effects of agglomeration economies on firms given their technological level. In addition, R&D is included to account for the firms’ own efforts to foster productivity through creating and absorbing knowledge. Finally, radii as well as administrative boundaries are used for defining regions. The results confirm differences in the strength and even in the direction of agglomeration economies: While urban economies have the largest effect on TFP for firms in high-tech industries, they have no effect on TFP in low-tech industries. For firms in the latter industries, however, the variety of the local economic structure has an impact, while this is irrelevant for the TFP of firms in high-tech industries. Only localization economies have a positive and significant effect on TFP throughout, but the effect increases with technological intensity of industries. Throughout, R&D is also found to have a positive effect that increases with technological intensity.
    Keywords: Total factor productivity, manufacturing firms, agglomeration economies, spatial concentration, structural estimation
    JEL: R11 R12 R15 D24
    Date: 2019
  5. By: Wadho, Waqar (Lahore School of Economics); Goedhuys, Micheline (UNU-MERIT); Chaudry, Azam (Lahore School of Economics)
    Abstract: Using unique innovation survey data collected among a homogenous sample of firms active in the textiles and apparel sector in Pakistan, this paper analyses the role of innovation for employment growth. In particular, it develops and tests the hypothesis that innovation is conducive to employment creation, and that this is especially the case for smaller and younger firms, supporting the hypothesis that young innovative companies grow faster by engaging in riskier and more radical innovation to catch up with incumbent firms. We find empirical evidence for these hypotheses, which is robust to different model specifications and estimation techniques and to different measures of innovation. Young innovative companies also perform well in absolute employment creation making them interesting from a policy perspective.
    Keywords: Technological innovation, Firm growth, Employment growth, Quantile regression, Textiles, Pakistan
    JEL: L25 L26 L67 O30 O53
    Date: 2019–01–11
  6. By: J. David Brown; John S. Earle; Mee Jung Kim; Kyung Min Lee
    Abstract: We estimate differences in innovation behavior between foreign versus U.S.-born entrepreneurs in high-tech industries. Our data come from the Annual Survey of Entrepreneurs, a random sample of firms with detailed information on owner characteristics and innovation activities. We find uniformly higher rates of innovation in immigrant-owned firms for 15 of 16 different innovation measures; the only exception is for copyright/trademark. The immigrant advantage holds for older firms as well as for recent start-ups and for every level of the entrepreneur’s education. The size of the estimated immigrant-native differences in product and process innovation activities rises with detailed controls for demographic and human capital characteristics but falls for R&D and patenting. Controlling for finance, motivations, and industry reduces all coefficients, but for most measures and specifications immigrants are estimated to have a sizable advantage in innovation.
    JEL: F22 J15 J6 L26 O3 O31
    Date: 2019–02
  7. By: Massimo Del Gatto; Fadi Hassan; Gianmarco I.P. Ottaviano; Fabiano Schivardi
    Abstract: We provide insights into the macro and microeconomic underpinnings of company profitability developments in Italy. We show that the average ROA (returns on assets) of Italian companies declined slightly between 1993 and 2005 and then contracted sharply during the economic crisis before starting a slow recovery in 2013. While the pattern in Italy before 2009 was very similar to the pattern in Germany; during the crisis it became more similar to the pattern in Spain, with both countries performing relatively worse than Germany and France. This decline appears to be attributable to a fall in productivity, rather than a rise in labour costs. Indeed, notwithstanding the substantial deterioration that began in 2000, unit labour costs (labour costs over value added) in Italy are still lower than in Germany, France and Spain. Within Italy, we document large cross-sectional differences. Micro firms and firms located in the South are tend to exhibit the lowest ROA, while the ROA of firms from the North-West dropped dramatically between the mid-1990s and 2010. Interestingly, firms with the highest innovation intensity (measured by intangibles over total assets) tend not to have the highest ROA, particularly if they are small and operating in low-tech and/or low competition sectors. We interpret our results in terms of ‘active’ (based on innovation and higher expenditure on intermediate goods and labour) and ‘passive’ (based on cost control) business models, with the latter exemplified by domestic and usually small-sized and family-owned firms. From this perspective, subsidising innovation could treat the symptom rather than the disease. Instead, medium-tolong term policies should focus on increasing the share of firms with ‘active’ business models. Our econometric analysis suggests possible instruments: increasing the efficiency of the market for corporate control; reducing the government ownership of firms; increasing the degree of competition in sectors where barriers are still present; and improving the effectiveness of the education system to raise the human capital endowment available to businesses.
    JEL: G3 L1 L2 O3
    Date: 2019–02
  8. By: Elena Crivellaro (Organization for Economic Co-operation and Development); Aikaterini Karadimitropoulou (Bank of Greece and University of East Anglia)
    Abstract: Technological advancements have been affecting labour shares through a steep decline in the relative price of investment goods. This has lowered the cost of capital allowing firms to replace labour with capital. Nonetheless, financing obstacles could obstruct investment in both labour and capital. This paper assesses the role of financial constraints in hampering the effect of relative investment prices change on labour shares, using data for up to 26 OECD countries over the period 1995-2014. We find statistically significant, economically large and robust effects of financial constraints acting as a channel to hinder the effect of relative investment prices changes on labour shares. In particular, our results reveal that: (i) there has been a global decline in the labour share that coincides with declines in the relative price of investment goods and this decline has been heterogeneous across countries with different levels of financial constraints; (ii) industries highly dependent on external finance face a lower decline in the labour share following a drop in the relative investment price than industries that are less dependent on external finance, possibly because they are more constrained in accessing funds to finance investment; (iii) industry-level investment prices affect the labour share partly through changes within-firms rather than through composition effects, with smaller effects for firms that are more dependent on external finance and larger effects in less financially constrained and highly productive firms. These results are corroborated by an estimated aggregate elasticity of substitution between capital and labour greater than one, and higher for countries that are less financially constrained.
    Keywords: Labour Income Share; Financial Constraints;External Financial Dependence;Relative investment price
    JEL: E25 E44 O33 J21
    Date: 2019–02

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