nep-tid New Economics Papers
on Technology and Industrial Dynamics
Issue of 2019‒12‒02
sixteen papers chosen by
Fulvio Castellacci
Universitetet i Oslo

  1. The Intellectual Spoils of War? Defense R&D, Productivity and International Spillovers By Moretti, Enrico; Steinwender, Claudia; Van Reenen, John
  2. Market Power and Labor Share By Arthur Bauer; Jocelyn Boussard
  3. The Rise of the People’s Republic of China and its Competition Effects on Innovation in Japan By Yamashita, Nobuaki; Yamauchi, Isamu
  4. Leverage over the Firm Life Cycle, Firm Growth, and Aggregate Fluctuations By Dinlersoz, Emin M.; Kalemli-Ozcan, Sebnem; Hyatt, Henry; Penciakova, Veronika
  5. Data Markets in Making: The Role of Technology Giants By Koski, Heli; Pantzar, Mika
  6. Innovation, Growth, and Dynamic Gains from Trade By Wen-Tai Hsu; Raymond G. Riezman; Ping Wang
  7. Youth Drain Entrepreneurship and Innovation By Massimo Anelli; Gaetano Basso; Giuseppe Ippedico; Giovanni Peri
  8. The effect of public funding on scientific performance: A comparison between China and the EU By Wang, Lili; Wang, Xianwen; Piro, Fredrik Niclas; Philipsen, Niels
  9. Structural Change in Firm Dynamics: From Inter-Firm Network and Geospatial Perspectives By Gee Hee HONG; OGURA Yoshiaki; SAITO Yukiko
  10. Implications of Foreign Direct Investment, Capital Formation and its Structure for Global Value Chains By Amat Adarov; Robert Stehrer
  11. Do agglomeration economies are lower for polluting sectors? By Emmanuelle Leturque; Mathieu Sanch-Maritan
  12. GVC journeys: Industrialisation and Deindustrialisation in the Age of the Second Unbundling By Richard Baldwin; Toshihiro Okubo
  13. Back to the Future - Changing Job Profiles in the Digital Age By Stephany, Fabian; Lorenz, Hanno
  14. Upwind sailors. Financial profile of innovative Italian firms during the double-dip recession By Daniele Pianeselli
  15. Does dynamic market competition with technological innovation leave no one behind? By Xu, Yongsheng; Yoshihara, Naoki
  16. Innovation and Strategic Network Formation By Krishna Dasaratha

  1. By: Moretti, Enrico (University of California, Berkeley); Steinwender, Claudia (MIT Sloan School of Management); Van Reenen, John (MIT Sloan School of Management)
    Abstract: In the US and many other OECD countries, expenditures for defense-related R&D represent a key policy channel through which governments shape innovation, and dwarf all other public subsidies for innovation. We examine the impact of government funding for R&D - and defense-related R&D in particular – on privately conducted R&D, and its ultimate effect on productivity growth. We estimate models that relate privately funded R&D to lagged government-funded R&D using industry-country level data from OECD countries and firm level data from France. To deal with the potentially endogenous allocation of government R&D funds we use changes in predicted defense R&D as an instrumental variable. In both datasets, we uncover evidence of "crowding in" rather than "crowding out," as increases in government-funded R&D for an industry or a firm result in significant increases in private sector R&D in that industry or firm. A 10% increase in government-financed R&D generates 4.3% additional privately funded R&D. An analysis of wages and employment suggests that the increase in private R&D expenditure reflects actual increases in R&D employment, not just higher labor costs. Our estimates imply that some of the existing cross-country differences in private R&D investment are due to cross-country differences in defense R&D expenditures. We also find evidence of international spillovers, as increases in government-funded R&D in a particular industry and country raise private R&D in the same industry in other countries. Finally, we find that increases in private R&D induced by increases in defense R&D result in significant productivity gains.
    Keywords: agglomeration, spillovers
    JEL: O30
    Date: 2019–11
  2. By: Arthur Bauer (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE ParisTech - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique); Jocelyn Boussard (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE ParisTech - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique, Directorate General for Economic and Financial Affairs (DG ECFIN) - European Commission)
    Abstract: This paper leverages a novel and comprehensive database on French firms from 1966 to 2016 to document important facts about secular trends in market power and labor shares, especially the role of market power in explaining variations of the aggregate labor share, as opposed to other technological factors. To do so, we follow the literature and rely on measures of industry concentration and firm level markups as proxies of market power. We find first that concentration has increased since the beginning of the 1980s in France, that the distribution of labor shares shifted upwards and that those two facts are correlated at the industry level. Second, aggregate markups increased slightly, but firm level markups decreased markedly. We find that the rise of concentration is correlated with a downward shift of the markup distribution, suggesting that the two measures might imperfectly capture different dimensions of market power. Third, larger firms have higher markups and lower labor shares. To sum up, larger firms with lower labor shares and higher markups gained market shares, even more so in industries where firm level labor shares increased and markups decreased most. From a macro point of view, the relative stability of the aggregate labor share in France can be decomposed into a small negative contribution of the aggregate markup, and a small positive contribution of aggregate technology, but from a micro point of view, reallocation contributed negatively, firm level markups contributed positively, and the contribution of technology was negligible.
    Date: 2019–11–07
  3. By: Yamashita, Nobuaki (Asian Development Bank Institute); Yamauchi, Isamu (Asian Development Bank Institute)
    Abstract: This paper empirically examines the “defensive innovation” hypothesis that firms with higher exposure to low-wage economy import competition intensively undertake more innovative activity by using a high quality Japanese firm-level panel dataset over the period 1994–2005. The novel feature of the analysis is the relation of firm-level variations of patent usage to import competition. The results suggest that intensified import competition from the People’s Republic of China has resulted in greater innovative activity by Japanese firms, consistent with the findings of European firms in Bloom et al. (2016). Moreover, such competition has also led to an increase in non-used patents.
    Keywords: defensive innovation; import competition; innovative activity
    JEL: F10 O00
    Date: 2019–03–28
  4. By: Dinlersoz, Emin M. (U.S. Census Bureau); Kalemli-Ozcan, Sebnem (University of Maryland); Hyatt, Henry (U.S. Census Bureau); Penciakova, Veronika (Federal Reserve Bank of Atlanta)
    Abstract: We study the leverage of U.S. firms over their life cycles and the connection between firm leverage, firm growth, and aggregate shocks. We construct a new dataset that combines private and public firms’ balance sheets with firm-level data from U.S. Census Bureau’s Longitudinal Business Database for the period 2005–12. Public and private firms exhibit different leverage dynamics over their life cycles. Firm age and size are systematically related to leverage for private firms but not for public firms. We show that private firms, but not public ones, deleveraged during the Great Recession and that this deleveraging is associated with a reduction in firm revenue and employment growth. Exploiting sectoral variation, we find that the leverage dynamics of firms is also relevant for aggregate fluctuations.
    Keywords: leverage; firm dynamics; firm growth; firm life-cycle; financial constraints; borrowing limits; short-term debt; aggregate shocks
    JEL: E23 G32
    Date: 2019–11–01
  5. By: Koski, Heli; Pantzar, Mika
    Abstract: Abstract This paper focuses on the role of large technology companies’ entry and expansion to the data-intensive market areas via their technological development and strategic acquisitions of companies. We analyze the evolvement of personal data related innovation in various data-intensive domains. We find that the ideas related to personal data are increasingly protected by patents. The growth in the numbers of personal data related patents was relatively modest from 2005 to the early 2010s, but it has intensified since 2011. Large technology companies’ entry to various new market areas is reflected in an exponential increase in patent applications particularly in the artificial intelligence domain. Furthermore, we find that the number of artificial intelligence/data analytics companies acquired by the data giants has escalated during the 2010s. Patent and acquisition data further echo technology giants’ intentions to expand their activities into the financial and personal health services. Overall, the data show the data giants’ buyouts are frequently targeted to companies active in the markets outside their core business. Our analysis illustrates how the divergencies in the data giants’ innovation activities and strategic acquisitions have led them to each conquer their specific areas of dominance in the global markets for data.
    Keywords: Data economy, Innovation, Patents, Acquisitions, Technology giants
    JEL: G34 L12 L25 O33
    Date: 2019–11–19
  6. By: Wen-Tai Hsu; Raymond G. Riezman; Ping Wang
    Abstract: How large are the welfare gains from trade? Would such gains be significantly amplified in the long run when productivity is endogenously enhanced? To address these questions, we focus on the dynamic effect of trade, in particular, how trade affects the incentives for technological advancement. We construct an innovation-based endogenous growth model of North-South trade. There are two types of innovation: one by the North to upgrade the general purpose technology (GPT) and another by all countries to advance entrepreneurial knowledge for developing differentiated products. We find sizable welfare gains from trade, about 5.3% when compared to autarky. The gains in our dynamic model are much higher than the static estimates where the effects of GPT-driven innovation are eliminated. The share of dynamic gains from trade is about 78% of the total gains in our benchmark economy – much higher than comparable figures identified in previous studies. Comparative statics indicate that GPT innovation efficacy, entrepreneurial talent distribution and trade elasticity are crucial for dynamic gains from trade.
    JEL: D92 F10 O30 O41
    Date: 2019–11
  7. By: Massimo Anelli (Bocconi Univerity); Gaetano Basso (Bank of Italy); Giuseppe Ippedico (University of California, Davis); Giovanni Peri (University of California, Davis)
    Abstract: Migration outflows, especially of young people, may deprive an economy of entrepreneurial energy and innovative ideas. We exploit exogenous variation in emigration from Italian local labor markets to show that between 2008 and 2015 larger emigration flows reduced firm creation. The decline affected firms owned by young people and innovative industries. We estimate that for every 1,000 emigrants, 100 fewer young-owned firms were created cumulatively over the whole period. A simple accounting exercise shows that about 60 percent of the effect is generated simply by the loss of young people; the remaining 40 percent is due to a combination of selection of emigrants among highly entrepreneurial people, negative spillovers on the entrepreneurship rate of locals, and negative local firm multiplier effect.
    Keywords: emigration, demography, brain drain, entrepreneurship, innovation
    JEL: J61 H7 O3 M13
    Date: 2019–10
  8. By: Wang, Lili (UNU-MERIT); Wang, Xianwen (Dalian University of Technology); Piro, Fredrik Niclas (Nordic Institute for Studies in Innovation, Research and Education); Philipsen, Niels (RILE, Erasmus University Rotterdam, and METRO, Maastricht University)
    Abstract: Public funding is believed to play an important role in the development of science and technology. However, whether public funding actually helps to increase scientific output (i.e. publications) remains a matter of debate. By analysing a dataset of co-publications between China and the EU and a dataset of joint project collaborations in European Framework Programmes for Research and Innovation (FP7 & H2020), we investigate whether different public funding agencies have different goals in their research policy. Our results support the hypotheses that funded research output represents the intentions of funding sponsors and a high level of public funding does not necessarily lead to high scientific output. Our results show that FP7/H2020 funded projects do not have a positive contribution to the output of joint publications between China and the EU. Interestingly, cooperation in the form of jointly writing proposals to these EU programmes, especially when they are not granted by the European Commission, can contribute significantly to joint scientific publications at a later stage. This applies in particular to cases where funding from China is involved. Our findings highlight the key role that funding agencies play in influencing research performance. While the Chinese government is interested in pursuing a high number of publications, the EU cares more about the social impact and indirect effect, which is hard to measure in the short term.
    Keywords: Public funding, research evaluation, scientific output, international collaboration, China, EU member states
    JEL: F02 H52 O20 O38 O52 O53
    Date: 2019–11–08
  9. By: Gee Hee HONG; OGURA Yoshiaki; SAITO Yukiko
    Abstract: This paper examines how unprecedented population aging affects firm dynamics in Japan, using the panel data from 2007 to 2016. Our analysis confirms that during this time, average firm age increased due to low rates of firm entry and exit. Average age of CEOs also increased with population aging and low turnover of CEOs. Aging of firms and CEOs is more salient in rural areas than urban areas. Furthermore, as voluntary firm exits are positively correlated with the age of CEOs, more exits are likely to occur as population aging intensifies. In rural areas, low density of firms may imply higher search costs in finding new transaction partners. Firm exit induced by exit of transaction partners is more likely to happen for rural areas. Our results suggest that policies aimed at supporting business succession and addressing increases in voluntary exists should cater to the lifecycle of firms as well as the geographic location of firms.
    Date: 2019–11
  10. By: Amat Adarov (The Vienna Institute for International Economic Studies, wiiw); Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: In the age of globalisation, international trade and foreign direct investment (FDI) have become integral elements of cross-country production sharing. In this paper we empirically assess the impact of FDI, as well as capital dynamics and structure, on the formation of global value chains (GVC) and trade in value added at country and sectoral levels based on a database constructed for a sample of European countries over the period 2000-2014. The analysis reveals that inward FDI is especially conducive to the formation of backward linkages while outward FDI facilitates forward GVC participation, especially in high-tech manufacturing sectors. A particularly robust influence of FDI and capital accumulation on GVC integration is identified in the textile and clothing industry. While capital accumulation in general intensifies GVC linkages for most sectors, ICT capital appears to be especially instrumental for backward integration of electrical and transportation equipment sectors. Disclaimer Financial support from the Joint Research Centre (JRC) of the European Commission is gratefully acknowledged (grant contract number 936041 - 2018 A8 AT).
    Keywords: global value chains, value added trade, foreign direct investment, capital, capital composition, gravity model, fractional response model
    JEL: F14 F15 F21 E22
    Date: 2019–11
  11. By: Emmanuelle Leturque (LEDi - Laboratoire d'Economie de Dijon - UB - Université de Bourgogne - CNRS - Centre National de la Recherche Scientifique); Mathieu Sanch-Maritan (CREAM - Centre de Recherche en Economie Appliquée à la Mondialisation - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université - IRIHS - Institut de Recherche Interdisciplinaire Homme et Société - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université)
    Abstract: This article explore how the relation between productivity and local city-size can be mitigated by pollution. More specifically, we estimate agglomeration economies considering a new source of heterogeneity among industries: the degree of pollution. Due to pollution perception acting as a dispersion force, we expect net agglomeration economies to be lower for polluting firms. In fact, polluting firms may anticipate that households and other firms are reluctant to locate near sources of pollution. In this paper, we exploit spatial data on sectoral emissions for a large number of air pollutants. We define a continuous variable of pollution that varies across sectors and employment zones. Our finding are twofold. First we find that agglomeration economies are lower for polluting sectors. Second we find that negative agglomeration are observed for some key pollutant such as carbon dioxide, nitrogen dioxide, lead or sulfur dioxide.
    Keywords: Agglomeration economies,Polluting sectors,Negative externalities
    Date: 2019–11–01
  12. By: Richard Baldwin; Toshihiro Okubo
    Abstract: Offshoring and participation in Global Value Chains (GVCs) are critical to understanding the rapid deindustrialisation of G7 nations and the rapid industrialisation of a handful of developing nations. This paper distinguishes between trade in final goods and trade in parts to track the shifting pattern of the location of manufacturing. We introduce a simple empirical measure of comparative advantage in parts on one hand and in final goods on the other. We illustrate how this distinction can help organise thinking on the patterns of industrialisation and deindustrialisation-namely the "GVC journeys" of advanced and emerging economies. We also provide one simple model. The model highlights the interactions of trade costs and the knowledge transfers to accompany offshoring of parts production and assembly, which we call trade-led versus knowledge-led globalisation.
    Date: 2019–08
  13. By: Stephany, Fabian; Lorenz, Hanno
    Abstract: The uniqueness of human labour is at question in times of smart technologies. The 250 years-old discussion on technological unemployment reawakens. Frey and Osborne (2012) estimate that half of US employment will be automated by algorithms within the next 20 years. Other follow-up studies conclude that only a small fraction of workers will be replaced by digital technologies. The main contribution of our work is to show that the diversity of previous findings regarding the degree of job automation is, to a large extent, driven by model selection and not by controlling for personal characteristics or tasks. For our case study, we consult Austrian experts in machine learning and industry professionals on the susceptibility to digital technologies in the Austrian labour market. Our results indicate that, while clerical computer-based routine jobs are likely to change in the next decade, professional activities, such as the processing of complex information, are less prone to digital change.
    Date: 2019–08–16
  14. By: Daniele Pianeselli (Bank of Italy)
    Abstract: We examine the issue of patents of Italian non-financial firms over the period 2008– 2012, during which the Italian economy was hit by two almost consecutive recessions. We classify firms according to their patenting activity, taking into consideration their financial characteristics. We find that innovation is concentrated in the manufacturing sector, where very few large firms maintain a persistent level of inventive capacity. Firms increased their average patenting slightly during the crisis compared to the period 2003–2007. Since Italian innovating firms are large and mature, a higher cash flow and a lower indebtedness allow them to fund patent-generating activity using internal resources. Moreover, innovating firms grow faster than non-innovating ones, even during recessions.
    Keywords: innovation, crisis, financial profile, Italian firms
    JEL: G01 G30 O30
    Date: 2019–10
  15. By: Xu, Yongsheng; Yoshihara, Naoki
    Abstract: In this paper, we examine the performance of the market mechanism by focusing on whether no one, in the `long-run', can be left behind with technological innovation in the economy. We show that the market mechanism with technological innovation unavoidably leaves some individuals behind. We extend this negative result to a broader class of resource allocation mechanisms.
    Keywords: dynamic market competition with technological innovation, Hicksian Optimism, the Walrasian allocation rule, Pareto efficiency, individual rationality
    JEL: D30 D51 D60 O33 P10 P20
    Date: 2019–10
  16. By: Krishna Dasaratha
    Abstract: We study a model of innovation with a large number of firms that create new technologies by combining several discrete ideas. These ideas can be acquired by private investment or via social learning. Firms face a choice between secrecy, which protects existing intellectual property, and openness, which facilitates social learning. These decisions determine interaction rates between firms, and these interaction rates enter our model as link probabilities in a resulting learning network. Higher interaction rates impose both positive and negative externalities on other firms, as there is more learning but also more competition. We show that the equilibrium learning network is at a critical threshold between sparse and dense networks. A corollary is that at equilibrium, the positive externality from interaction dominates: the innovation rate and even average firm profits would be dramatically higher if the network were denser. So there are large returns to increasing interaction rates above the critical threshold---but equilibrium remains critical even after natural interventions. One policy solution is to introduce informational intermediaries, such as public innovators who do not have incentives to be secretive. These intermediaries can facilitate a high-innovation equilibrium by transmitting ideas from one private firm to another.
    Date: 2019–11

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