nep-tid New Economics Papers
on Technology and Industrial Dynamics
Issue of 2020‒07‒20
fourteen papers chosen by
Fulvio Castellacci
Universitetet i Oslo

  1. What Are the Labor and Product Market Effects of Automation? New Evidence from France By Aghion, Philippe; Antonin, Celine; Bunel, Simon; Jaravel, Xavier
  2. Estimating investments in General Purpose Technologies. The case of AI Investments in Europe By Daniel Nepelski; Maciej Sobolewski
  3. Regional patterns of unrelated technological diversification: the role of academic inventors By Francesco Quatraro; Alessandra Scandura
  4. The cost of weak institutions for innovation in China By Rodríguez-Pose, Andrés; Zhang, Min
  5. From Imitation to Innovation: Where Is all that Chinese R&D Going? By Michael König; Zheng Michael Song; Kjetil Storesletten; Fabrizio Zilibotti
  6. Long-Term Shifts in Korean Manufacturing and Plant-Level Productivity Dynamics By Lee,Yoonsoo
  7. Firm and Technology Dynamics in the Short- and Long-Run: A Macroeconomic Model for Research and Innovation Policy Evaluation By BENEDETTI FASIL Cristiana; IMPULLITTI Giammario; LICANDRO Omar; SEDLACEK Petr
  8. How Firms will affect the Future of Work By Jacques Bughin
  9. Evaluating State and Local Business Tax Incentives By Cailin Slattery; Owen Zidar
  10. Did bank lending stifle innovation in Europe during the Great Recession? By Oana Peia; Davide Romelli
  11. Supporting innovative entrepreneurship: an evaluation of the Italian "Start-up Act" By Francesco Manaresi; Carlo Menon; Pietro Santoleri
  12. Dynamic Effects of Licensing and Knowledge Transfer across Research Stages: Evidence from the Pharmaceutical Industry By Zhili Tian; Ralph Siebert
  13. Hidden champions: A review of the literature & future research avenues By Schenkenhofer, Julian
  14. Invention Disclosures and the Slowdown of Scientific Knowledge By Link, Albert; Scott, John

  1. By: Aghion, Philippe; Antonin, Celine; Bunel, Simon; Jaravel, Xavier
    Abstract: We use comprehensive micro data in the French manufacturing sector between 1994 and 2015 to document the effects of automation technologies on employment, wages, prices and profits. Causal effects are estimated with event studies and a shift-share IV design leveraging predetermined supply linkages and productivity shocks across foreign suppliers of industrial equipment. At all levels of analysis - plant, firm, and industry - the estimated impact of automation on employment is positive, even for unskilled industrial workers. We also find that automation leads to higher profits, lower consumer prices, and higher sales. The estimated elasticity of employment to automation is 0.28, compared with elasticities of 0.78 for profits, -0.05 for prices, and 0.37 for sales. Consistent with the importance of business-stealing across countries, the industry-level employment response to automation is positive and significant only in industries that face international competition. These estimates can be accounted for in a simple monopolistic competition model: firms that automate more increase their profits but pass through some of the productivity gains to consumers, inducing higher scale and higher employment. The results indicate that automation can increase labor demand and can generate productivity gains that are broadly shared across workers, consumers and firm owners. In a globalized world, attempts to curb domestic automation in order to protect domestic employment may be self-defeating due to foreign competition.
    Date: 2020–02
  2. By: Daniel Nepelski (European Commission - JRC); Maciej Sobolewski (European Commission - JRC)
    Abstract: In spite of a large interest in General Purpose Technologies, it is unclear how much economies invest in their development and diffusion. For example, various sources provide various figures of investments in Artificial Intelligence (AI). This constantly blurs the understanding of the AI-driven revolution among policy makers and business leaders and constraints informed decision making. The current report presents an original and comprehensive methodology to estimate AI investments. It rests on three assumptions: First, it considers AI as a general-purpose technology (GPT). Second, it includes not only investments in the core AI technology, but in complementary assets and capabilities necessary for its adoption. Finally, the methodology recognises different roles that the public and private sectors play in the process of AI creation and implementation. Using this approach, AI investments in Europe are estimated.
    Keywords: General Purpose Technology, GPT, Artificial Intelligence, AI, digital technologies, investments, intangibles, Europe
    Date: 2020–05
  3. By: Francesco Quatraro; Alessandra Scandura
    Abstract: This paper investigates the relationship between the involvement of academic inventors in local innovation dynamics and the patterns of regional technological diversification. Based on the combination of the evolutionary economic approach and the theories on regional innovation capabilities, and on the distinctive features of academic inventors, we hypothesise that knowledge spillovers accruing from the participation of university scientists to local patenting activity influence the extent of regional technological diversification. In addition, we posit that the involvement of academic inventors mitigates the path dependency engendered by the constraining role of the existing capabilities. The empirical results highlight the key role of academic institutions for the development of regional technological trajectories while contributing to the academic and policy debate on regional diversification strategies.
    Keywords: regional diversification, relatedness, academic inventors
    JEL: O33 R11
    Date: 2020
  4. By: Rodríguez-Pose, Andrés; Zhang, Min
    Abstract: Does the variation in the quality of local government institutions affect the capacity of firms to innovate? This paper uses a unique dataset that combines the specific features of 2,700 firms with the institutional and socioeconomic characteristics of the 25 cities in China where they operate, in order to assess the extent to which institutional quality -- measured across four dimensions: rule of law, government effectiveness, corruption, and regulatory quality -- affects both the innovation probability and intensity of firms. The results of the econometric analysis show that poor institutional quality in urban China is an important barrier for firm-level innovation. In particular, a deficient rule of law, high corruption, and a weak regulatory quality strongly undermine firm-level innovation. The role of these factors is far more limited in the case of innovation intensity. Better institutions also reduce the amount of time firms spend dealing with government regulations in order to facilitate innovation. The results also indicate that the cost of weak institutions for innovation is higher for private than for state-owned firms, at least in the early stages of innovation. In general, differences in institutional quality generate local urban ecosystems that impinge on the propensity of firms to innovate.
    Keywords: China; cities; firms; Government quality; Innovation; institutions
    JEL: H1 O3 O31
    Date: 2020–02
  5. By: Michael König; Zheng Michael Song; Kjetil Storesletten; Fabrizio Zilibotti
    Abstract: We construct a model of firm dynamics with heterogeneous productivity and distortions. The productivity distribution evolves endogenously as the result of the decisions of firms seeking to upgrade their productivity over time. Firms can adopt two strategies toward that end: imitation and innovation. The theory bears predictions about the evolution of the productivity distribution. We structurally estimate the stationary state of the dynamic model targeting moments of the empirical distribution of R&D and TFP growth in China during the period 2007--2012. The estimated model fits the Chinese data well. We compare the estimates with those obtained using data for Taiwan and find the results to be robust. We perform counterfactuals to study the effect of alternative policies. We find large effects of R&D misallocation on long-run growth.
    JEL: L16 O31 O47 O53
    Date: 2020–06
  6. By: Lee,Yoonsoo
    Abstract: The Korean manufacturing sector has undergone active structural transformation in the past few decades. In particular, the composition of core manufacturing products has changed over time. In the 1970s, textiles, which are used to produce fabric, clothes, apparel, and shoes, were the main product. Over time, the value added shares have shifted toward electronics, ships, and cars. By analyzing plant-level microdata, this paper documents the patterns of entry, exit, job creation and destruction, and the growth of young plants during the industrial shift. This industrial shift involved active job reallocations, as well as the entry and exit of plants. The paper quantifies the extent to which such plant-level dynamics explain aggregate productivity growth. The findings show that within-plant productivity growth, which includes the effects of fast growth of young plants as well as robust growth of large continuing plants, played an important role in the productivity growth of the Korean manufacturing sector. The contribution of reallocations between continuing plants was relatively small. Moreover, productivity growth of an industry accompanied an increase of productivity dispersion, a measure commonly interpreted as the degree of misallocation.
    Keywords: Food&Beverage Industry,General Manufacturing,Textiles, Apparel&Leather Industry,Pulp&Paper Industry,Common Carriers Industry,Construction Industry,Business Cycles and Stabilization Policies,Plastics&Rubber Industry,Transport Services,Labor Markets
    Date: 2020–06–15
  7. By: BENEDETTI FASIL Cristiana (European Commission - JRC); IMPULLITTI Giammario; LICANDRO Omar; SEDLACEK Petr
    Abstract: We develop a dynamic stochastic general equilibrium model with firm and technology dynamics to assess the impact of a rich set of innovation policies. We explore the aggregate and cross-sectional effects of an R&D tax credit, corporate taxes, and policies affecting firms’ access to credit. Two main results emerge. First, the aggregate impact of these policies is driven by general equilibrium effects operating via the government budget, the labor market and via equilibrium entry of firms. In contrast, their stimulating effect on innovation and productivity growth has a negligible impact on aggregate income and employment. Second, we find that uniform policies have heterogeneous effects on firms and their size distribution which generate rich feedbacks to the aggregate economy.
    Keywords: Firm dynamics, innovation policy, endogenous growth, business cycles
    Date: 2020–06
  8. By: Jacques Bughin
    Abstract: In the current debate over the Future of Work, there is little discussion about how firms anticipate the evolution of their demand for labor and the related mix of skills as they adopt Artificial Intelligence (AI) tools. This article contributes to this debate by leveraging a global survey of 3000 firms in 10 countries, covering the main sectors of the economy. Descriptive statistics from the survey are complemented by econometric analyses of corporate labor demand decisions. The findings are four-fold. First, those are still early days in the absorption of AI technologies, with less than 10% of companies investing in a majority of AI technologies and for multiple purposes. Second, if an aggregate portion of firms anticipates reducing employment as a result of adopting AI technologies, as many other companies anticipate labor growth or reorganizing employment. Third, this reallocation picture holds true when we examine further demand by labor functions and skills, with talent shifting toward more analytic, creative, and interaction skills, and away from administrative and routine-based functions, in line with past trends of skill- and routine-biased technological change. Fourth, a novel to the literature on Future of Work, econometric results on employment change highlight that employment dynamics are driven by related spillover effects to product markets. Higher competition, larger expectations of market (share) deployment may counterbalance negative automation effect on employment dynamics.
    Keywords: Artificial intelligence, Derived labor demand, Product market competition
    Date: 2020–06
  9. By: Cailin Slattery (Columbia Business School); Owen Zidar (Princeton University and NBER)
    Abstract: This essay describes and evaluates state and local business tax incentives in the United States. In 2014, states spent between $5 and $216 per capita on incentives for firms in the form of firm-specific subsidies and general tax credits, which mostly target investment, job creation, and research and development. Collectively, these incentives amounted to nearly 40% of state corporate tax revenues for the typical state, but some states' incentive spending exceeded their corporate tax revenues. States with higher per capita incentives tend to have higher state corporate tax rates. Recipients of firm-specific incentives are usually large establishments in manufacturing, technology, and high-skilled service industries, and the average discretionary subsidy is $178M for 1,500 promised jobs. Firms tend to accept subsidy deals from places that are richer, larger, and more urban than the average county, and poor places provide larger incentives and spend more per job. Comparing "winning" and runner-up locations for each deal in a bigger and more recent sample than in prior work, we find that average employment within the 3-digit industry of the deal increases by roughly 1,500 jobs. While we find some evidence of direct employment gains from attracting a firm, we do not find strong evidence that firm-specific tax incentives increase broader economic growth at the state and local level. Although these incentives are often intended to attract and retain high-spillover firms, the evidence on spillovers and productivity effects of incentives appears mixed. As subsidy-giving has become more prevalent, subsidies are no longer as closely tied to firm investment. If subsidy deals do not lead to high spillovers, justifying these incentives requires substantial equity gains, which are also unclear empirically.
    JEL: H20 H25 H71 R11 R30 R50
    Date: 2020–01
  10. By: Oana Peia; Davide Romelli
    Abstract: Using the 2008-09 Global Financial crisis and the 2012 Euro area sovereign debt crisis as natural experiments, we investigate the effects of contractions in credit supply on R&D spending in a large sample of European firms. Our identification strategy exploits differences in financial constraints across firms, as well as the cross-industry variation in dependence on external finance, to identify a causal effect of bank credit supply on firm investment in innovation. We show that firms that are more likely financially constrained, in industries more dependent on external finance, have a disproportionally lower growth rate of R&D spending, as well as lower R&D intensity and share of R&D investment in total investment during periods of tight credit supply. These results are robust to different proxies of financial constraints, model specifications and fixed-effects identification strategies.
    Keywords: Financial frictions; Investment; Innovation; R&D spending
    JEL: O30 G21 I22
    Date: 2019–11
  11. By: Francesco Manaresi (Directorate General for Economics, Statistics and Research, Bank of Italy); Carlo Menon (Laterite); Pietro Santoleri (Institute of Economics and EMbeDS, Sant'Anna School of Advanced Studies)
    Abstract: The role of innovative start-ups in contributing to aggregate economic dynamism has attracted increased attention in recent years. While this has translated into several public policies explicitly targeting them, there is little evidence on their e ectiveness. This paper provides a comprehensive evaluation of the "Start-up Act", a policy intervention aimed at supporting innovative start-ups in Italy. We construct a unique database encompassing detailed information on firm balance-sheets, employment, firm demographics, patents and bank-firm relationships for all Italian start-ups. We use conditional difference-in-differences and instrumental variable strategies to evaluate the impact of the "Start-up Act" on firm performance. Results show that the policy induces a significant increase in several firm outcomes whereas no effect is detected in patenting propensity and survival chances. We also document that the policy alleviates nancial frictions characterizing innovative start-ups through the provision of tax credits for equity and a public guarantee scheme which, respectively, trigger an increase in the probability of receiving VC and accessing bank credit.
    Keywords: Start-ups; Entrepreneurship policy; Policy Evaluation; Firm performance
    JEL: M13 L25 L53 D04
    Date: 2020–07
  12. By: Zhili Tian; Ralph Siebert
    Abstract: In the pharmaceutical industry, firms frequently engage in licensing agreements to overcome innovation challenges and keep up with the pace of developing new drugs. Licensing helps firms jointly develop new drugs and acquire external knowledge, which helps improve their internal drug development capability. Our study examines the dynamic effects of licensing on the success of the licensees’ internal drug development across research stages. We adopt a structural equation modeling approach and find that external knowledge transfer via licensing can have differential effects on firms’ internal research stage-specific R&D capabilities. The success of transferring external knowledge to an in-licensing firm is critically dependent on the firm’s internal R&D capabilities, their financial capability, and the research stage. We find that license agreements formed at the early stage (the discovery and preclinical test phases) and intermediate stage (phase 1 and 2 clinical test phases) exert strong direct and short-run effects on internal R&D capabilities in the same research stages. Moreover, licensing formed at the intermediate stage exerts remarkably strong indirect and long-run effects that impact R&D capabilities in successive research stages. Licensing in the late stage (phase 3 clinical test and product approval) is costly and does little to enhance firms’ internal R&D capabilities. Our results also show that licensing is formed among firms with stronger financial resources, and those resources are necessary for a successful technology transfer. Our results also provide insights into the impact of licensing on project success rates across research stages.
    Keywords: pharmaceutical drug development, licensing, R&D capabilities, effects of licensing on R&D capabilities
    JEL: L24 L25 L65 D22
    Date: 2020
  13. By: Schenkenhofer, Julian
    Abstract: Substantial efforts have contributed to overcome the scarcity of hidden champions research. Nevertheless, literature has missed to compile a comprehensive review. Drawing on the insights of 94 publications, four strands of literature could be distinguished to unravel the essence of hidden champions. Research on hidden champions studies their 1) internationalization strategies, 2) R&D and innovation strategies, the 3) worldwide and regional geographic distribution of hidden champions and finally 4) other research that could not be assigned to one of the first three strands. A hand-collected sample of 1372 German hidden champions exemplifies the key insights from the reviewed research articles. Discussing the findings of the different literature strands aims at drawing a conclusion on their main results and analytical pitfalls to eventually unfold and motivate future research avenues.
    Keywords: Literature Review,Hidden Champions,Niche Strategy
    JEL: D4 L1 L22 O32
    Date: 2020
  14. By: Link, Albert (University of North Carolina at Greensboro, Department of Economics); Scott, John (Dartmouth College)
    Abstract: Invention disclosures are one measure of new scientific knowledge that represents and predicts the future scientific research output of a U.S. federal laboratory. In this paper, we document a negative shift in the production function for new scientific knowledge as measured by invention disclosures at one federal laboratory, the National Institute of Standards and Technology, over the first 16 years of the new millennium. We find a negative shift of the production function for new scientific knowledge, and that shift might reflect the coincidence of the ICT revolution that enabled fast science, and the evaluation of research with uncritical use of citation counts that created incentives to focus on incremental research in crowded research topics.
    Keywords: Invention disclosures; Federal laboratory; Scientific knowledge; Knowledge production function; ICT revolution;
    JEL: O31 O35 O38
    Date: 2020–07–13

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