nep-tid New Economics Papers
on Technology and Industrial Dynamics
Issue of 2021‒02‒08
sixteen papers chosen by
Fulvio Castellacci
Universitetet i Oslo

  1. Human Capital Distribution and the Transition from Stagnation to Growth By Mario F. Carillo
  2. Growing like China: firm performance and global production line position By Davin Chor; Kalina Manova; Zhihong Yu
  3. The Impact of Covid-19 on Productivity By Nicholas Bloom; Philip Bunn; Paul Mizen; Pawel Smietanka; Gregory Thwaites
  4. Capital (Mis)allocation and Incentive Misalignment By Alexander Schramm; Alexander Schwemmer; Jan Schymik
  5. Internet Access and U.S. - China Innovation Competition By Gerard Hoberg; Yuan Li; Gordon M. Phillips
  6. Urbanisation and the onset of modern economic growth By Liam Brunt; Cecilia García-Peñalosa
  7. The difficult task of changing while growing By Marwil J. Dávila-Fernández; Serena Sordi
  8. Competition and private R&D investment By Thomas Grebel; Lionel Nesta
  9. Growth, development, and structural change at the firm-level: The example of the PR China By Heinrich, Torsten; Yang, Jangho; Dai, Shuanping
  10. The Abolition of Immigration Restrictions and the Performance of Firms and Workers: Evidence from Switzerland By Andreas Beerli; Jan Ruffner; Michael Siegenthaler; Giovanni Peri
  11. The Role of Human Capital in Structural Change and Growth in an Open Economy: Innovative and Absorptive Capacity Effects By Brita Bye; Taran Faehn
  12. Estimating Production Functions in Differentiated-Product Industries with Quantity Information and External Instruments By de Roux, Nicolás; Eslava, Marcela; Franco, Santiago; Verhoogen, Eric
  13. A note on Germany's role in the fourth industrial revolution By Behrens, Vanessa; Viete, Steffen
  14. Digital Innovation and its Potential Consequences: the Elasticity Augmenting Approach By Bertani, Filippo; Raberto, Marco; Teglio, Andrea; Cincotti, Silvano
  15. Impact of Technological Innovation on Energy Efficiency in Industry 4.0 Era: Moderation of Shadow Economy in Sustainable Development By Chen, Maozhi; Sinha, Avik; Hu, Kexiang; Shah, Muhammad Ibrahim
  16. No inventor is an island: social connectedness and the geography of knowledge flows in the US By Andreas Diemer; Tanner Regan

  1. By: Mario F. Carillo (Università di Napoli Federico II and CSEF)
    Abstract: This research argues that differences in the distribution of human capital across countries and their impact on the advancement and the adoption of technology contributed to the differential timing of the transition from the Malthusian stagnation to modern growth and the persistent differences in income per capita across the globe. Polarization in the distribution of human capital within an economy implied a trade-off between innovation and adoption of technologies that determined the transition from stagnation to growth. Despite the contribution of the upper tail of the human capital distribution to technological innovation, the absence of wide group of educated individuals among the working population delayed technology adoption and the transition from stagnation to growth.
    Keywords: Economic Growth; Human Capital Distribution; Demographic Transition; Long-run Development.
    JEL: I24 J13 J24 O30 O40
    Date: 2021–01–26
  2. By: Davin Chor; Kalina Manova; Zhihong Yu
    Abstract: Global value chains have fundamentally transformed international trade and development in recent decades. We use matched firm-level customs and manufacturing survey data, together with Input-Output tables for China, to examine how Chinese firms position themselves in global production lines and how this evolves with productivity and performance over the firm lifecycle. We document a sharp rise in the upstreamness of imports, stable positioning of exports, and rapid expansion in production stages conducted in China over the 1992-2014 period, both in the aggregate and within firms over time. Firms span more stages as they grow more productive, bigger and more experienced. This is accompanied by a rise in input purchases, value added in production, and fixed cost levels and shares. It is also associated with higher profits though not with changing profit margins. We rationalize these patterns with a stylized model of the firm lifecycle with complementarity between the scale of production and the scope of stages performed.
    Keywords: Global value chains, production line position, upstreamness, firm heterogeneity, firm lifecycle, China
    JEL: F10 F14 F23 L23 L24 L25
    Date: 2020–09
  3. By: Nicholas Bloom; Philip Bunn; Paul Mizen; Pawel Smietanka; Gregory Thwaites
    Abstract: We analyze the impact of Covid-19 on productivity in the United Kingdom using data derived from a large monthly firm panel survey. Our estimates suggest that Covid-19 will reduce TFP in the private sector by up to 5% in 2020 Q4, falling back to a 1% reduction in the medium term. Firms anticipate a large reduction in ‘within-firm’ productivity, primarily because measures to contain Covid-19 are expected to increase intermediate costs. The negative ‘within-firm’ effect is partially offset by a positive ‘between-firm’ effect as low productivity sectors, and the least productive firms among them, are disproportionately affected by Covid-19 and consequently make a smaller contribution to the economy. In the longer run, productivity growth is likely to be reduced by diminished R&D expenditure and diverted senior management time spent on dealing with the pandemic.
    JEL: E0 L2
    Date: 2020–12
  4. By: Alexander Schramm; Alexander Schwemmer; Jan Schymik
    Abstract: We study how managerial incentives affect the allocation of capital inside firms. To identify the effect of incentives on investment decisions we use a within-firm estimator that exploits variation across capital goods and a US accounting reform as an exogenous shock to managers' short-termist incentives. Our evidence shows that capital (mis)allocation within firms can be amplified by short-termist incentives. More short-term incentives cause a shift in investment expenditures away from durables towards more short-lived capital goods, effectively shortening the durability of firms' capital stocks. To study the economic implications of this within-firm misallocation channel, we then build a model of firm investments with incentive frictions that we calibrate to the US economy. We show that even moderate increases in short-termist incentives, such as those around the accounting reform, may cause substantial inefficiencies. These inefficiencies lead to large within-firm spreads in the marginal products of capital goods, causing long-run declines in output and real wages.
    Keywords: Corporate investment; Firm dynamics; Capital reallocation; Short-term incentives
    JEL: E22 G31 D24 D25 L23
    Date: 2021–01
  5. By: Gerard Hoberg; Yuan Li; Gordon M. Phillips
    Abstract: Using new measures of expanded Internet access in China and internet-based search, we examine how competitive shocks from China impact U.S. innovation through the markets for innovation and existing products. We identify shocks to innovation competition using the geography of Chinese internet penetration and Chinese import data. Increases in the ability of Chinese industry peers to gather knowledge through the internet are followed by reductions in U.S. R&D investment and subsequent patents, and increased patenting by Chinese firms. The new Chinese patents also cite the U.S. firms patents at a high rate, consistent with increased intellectual property competition.
    JEL: D43 F13 L21 L26 O31 O34
    Date: 2020–12
  6. By: Liam Brunt (Norwegian School of Economics and CEPR); Cecilia García-Peñalosa (Aix-Marseille University, CNRS, EHESS, AMSE and CEPR)
    Abstract: A large literature characterizes urbanisation as the result of productivity growth attracting rural workers to cities. We incorporate economic geography elements into a growth model and suggest that causation runs the other way: when rural workers move to cities, the resulting urbanisation produces technological change and productivity growth. Urban density leads to knowledge exchange and innovation, thus creating a positive feedback loop between city size and productivity that sets off sustained economic growth. The model is consistent with the fact that urbanisation rates in Western Europe, and notably in England, reached unprecedented levels by the mid-18 th century, the eve of the Industrial Revolution.
    Keywords: industrialization, urbanisation, innovation, long-run growth
    JEL: N13 O14 O41
    Date: 2021–01
  7. By: Marwil J. Dávila-Fernández; Serena Sordi
    Abstract: This article develops a small-scale agent-based model to investigate the interplay between heterogeneous agents, institutions and technological change. By acknowledging the concept of behavioural dispositions, we di¤erentiate between changers, neutrals, and deniers. Our research question is further motivated using data from the last two waves of the World Values Survey. The composition of the population is endogenously determined taking into account that reasoning is context-dependent. As we increase the degree of interaction between agents, a bi-modal distribution with two different basins of attraction emerges: one around an equilibrium with the majority of the population supporting innovative change, and another with most agents being suspicious of innovation. Neutral agents play an important role as an element of resilience. Conditional on their share in equilibrium, an increase in the response of the respective probability functions to growth results in a super-critical Hopf-bifurcation, followed by the emergence of persistent fluctuations. Numerical experiments on the basin of attraction also reveal the birth of a periodic hidden attractor. The long-run cycles we obtain indicate that economies are more likely to be path-dependent than what conventional approaches usually admit. As the productive structure evolves, the institutional framework is transformed and reinforces technological change in a cumulative way.
    JEL: O11 O33 P11
    Date: 2021–01
  8. By: Thomas Grebel; Lionel Nesta (Université Côte d'Azur, CNRS, GREDEG (France))
    Abstract: We investigate the determinants of the sign of Research and Development reaction functions of rival firms. Using a two-stage n-firm Cournot competition game, we show that this sign depends on four types of environments in terms of product rivalry and technology spillovers. We test the predictions of the model on the world's largest manufacturing corporations. Assuming that firms make R&D investments based on the R&D effort of the representative rival company, we develop a dynamic panel data model that accounts for the endogeneity of the decision of the rival firm. Empirical results thoroughly corroborate the validity of the theoretical model.
    Date: 2020–05–27
  9. By: Heinrich, Torsten; Yang, Jangho; Dai, Shuanping
    Abstract: Understanding the microeconomic details of technological catch-up processes offers great potential for informing both innovation economics and development policy. We study the economic transition of the PR China from an agrarian country to a high-tech economy as one example for such a case. It is clear from past literature that rapidly rising productivity levels played a crucial role. However, the distribution of labor productivity in Chinese firms has not been comprehensively investigated and it remains an open question if this can be used to guide economic development. We analyze labor productivity and the dynamic change of labor productivity in firm-level data for the years 1998-2013 from the Chinese Industrial Enterprise Database. We demonstrate that both variables are conveniently modeled as Lévy alpha-stable distributions, provide parameter estimates and analyze dynamic changes to this distribution. We find that the productivity gains were not due to super-star firms, but due to a systematic shift of the entire distribution with otherwise mostly unchanged characteristics. We also found an emerging right-skew in the distribution of labor productivity change. While there are significant differences between the 31 provinces and autonomous regions of the P.R. China, we also show that there are systematic relations between micro-level and province-level variables. We conclude with some implications of these findings for development policy.
    Keywords: structural change; China; labor productivity; heavy-tailed distributions; microdata
    JEL: J24 L11 O10 O3 O53 R12
    Date: 2020–12–27
  10. By: Andreas Beerli (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Jan Ruffner (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Michael Siegenthaler (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Giovanni Peri (Department of Economics, UC Davis, USA)
    Abstract: We study a reform that granted European cross-border workers free access to the Swiss labor market and had a stronger effect on regions close to the border. The greater availability of cross-border workers increased foreign employment substantially. Although many cross-border workers were highly educated, wages of highly educated natives increased. The reason is a simultaneous increase in labor demand: the reform increased the size, productivity, and innovation performance of skill-intensive incumbent firms and attracted new firms, creating opportunities for natives to pursue managerial jobs. These effects are mainly driven by firms that reported skill shortages before the reform.
    Keywords: border region, cross-border workers, free movement of persons, firm performance, firm relocation, immigration policy, immigration restrictions, labor mobility, skilled immigration
    JEL: F22 J22 J24 J61
    Date: 2020–08
  11. By: Brita Bye; Taran Faehn
    Abstract: Since the financial crisis in 2008, slow growth has riddled Europe and the Covid-19 pandemic is amplifying the challenge. Promoting economic growth and transforming to a more knowledge-based industrial structure will be high on the agenda for the coming decades. We study how more and better human capital can contribute to knowledge accumulation and structural change by means of a dynamic endogenous growth model, with Norway as a numerical case. Human capital has two main roles in productivity growth: to increase the innovative capacity by participating in research and development (R&D), and to increase the absorptive capacity in sectors that trade and can learn from abroad. We find that in a small, open economy sectors where human capital, R&D and trade interact, and enable absorption, tend to grow fastest.
    Keywords: absorptive capacity, computable general equilibrium model, endogenous growth, human capital, innovation, research and development
    JEL: C68 F43 O30 O41
    Date: 2021
  12. By: de Roux, Nicolás (Universidad de los Andes); Eslava, Marcela (Universidad de los Andes); Franco, Santiago (University of Chicago); Verhoogen, Eric (Columbia University)
    Abstract: This paper develops a new method for estimating production-function parameters that can be applied in differentiated-product industries with endogenous quality and variety choice. We take advantage of data on physical quantities of outputs and inputs from the Colombian manufacturing survey, focusing on producers of rubber and plastic products. Assuming constant elasticities of substitution of outputs and inputs within firms, we aggregate from the firm-product to the firm level and show how quality and variety choices may bias standard estimators. Using real exchange rates and variation in the "bite" of the national minimum wage, we construct external instruments for materials and labor choices. We implement a simple two-step instrumental-variables method, first estimating a difference equation to recover the materials and labor coefficients and then estimating a levels equation to recover the capital coefficient. Under the assumption that the instruments are uncorrelated with firms' quality and variety choices, this method yields consistent estimates, free of the quality and variety biases we have identified. Our point estimates differ from those of existing methods and changes in our preferred productivity estimator perform relatively well in predicting future export growth.
    Keywords: production-function estimation, quality, variety, external instruments
    JEL: L1 D24 O14 L65
    Date: 2020–12
  13. By: Behrens, Vanessa; Viete, Steffen
    Abstract: This paper provides in-depth insights into patenting activities in technologies of the Fourth Industrial Revolution (4IR) in Germany and worldwide between the years 1990 and 2016. The descriptive analysis of these digital inventions at the current technological frontier yields several main findings. Germany is a leader in 4IR innovations, accounting for 12% of all 4IR patents filed wordwide. Digital inventions are predominantly filed in the ICT sector, yet compared to other 4IR leaders, Germany's 4IR patents are relatively more directed to the motor vehicles sector and less so to the ICT sector. This is driven by Germany's high R&D-intensity in this sector, rather than a larger share of 4IR inventions in the motor vehicle sector. Germany's leading position is driven by its high number of patent applications rather than a specialization in 4IR.
    Date: 2020
  14. By: Bertani, Filippo; Raberto, Marco; Teglio, Andrea; Cincotti, Silvano
    Abstract: Digital technologies have been experiencing in the last thirty years a considerable development which has radically changed our economy and lives. In particular, the advent of new intangible technologies, represented by software, artificial intelligence and deep learning algorithms, has deeply affected our production systems from manufacturing to services, thanks also to further improvement of tangible computational assets. Investments in digital technologies have been increasing in most of developed countries, posing the issue of forecasting potential scenarios and consequences deriving form this new technological wave. The contribution of this paper is both theoretical and related to model design. First of all we present a new production function based on the concept of organizational units. Then, we enrich the macroeconomic model Eurace integrating this new function in the production processes in order to investigate the potential effects deriving from digital technologies innovation both at the micro and macro level.
    Keywords: Elasticity of substitution, Elasticity augmenting approach, Digital transformation, Agent-based economics, Organizational unit.
    JEL: C63 O33
    Date: 2021–01–15
  15. By: Chen, Maozhi; Sinha, Avik; Hu, Kexiang; Shah, Muhammad Ibrahim
    Abstract: Despite the ongoing research on energy efficiency and innovation in the context of Industry 4.0, little is known on how degree of leakages in economy can impact the energy efficiency-innovation association. This issue has been addressed by the United Nations in their Sustainable Development Goals (SDG) report also. In the era of Industry 4.0, this issue can be crucial from the perspective of sustainable development, and we are analyzing this issue in case of Middle East and North African (MENA) countries over a period of 1990-2016. The second-generation methodological approaches have been adopted. Our results show that technological innovation has a positive impact on energy efficiency, whereas growth in shadow economy has a detrimental impact on energy efficiency. The structural transformation of economy has positive impact on energy efficiency. Based on our results, we have designed an SDG framework, which might help the MENA countries to achieve the objectives of SDG 7, SDG 8, SDG 9, and SDG 4.
    Keywords: Energy Efficiency; Technological Innovation; Sustainable Development Goals; Fisher Ideal Index; Lilien Index
    JEL: O3 O33 Q40
    Date: 2020
  16. By: Andreas Diemer; Tanner Regan
    Abstract: Do informal social ties connecting inventors across distant places promote knowledge flows between them? To measure informal ties, we use a new and direct index of social connectedness of regions based on aggregate Facebook friendships. We use a well-established identification strategy that relies on matching inventor citations with citations from examiners. Moreover, we isolate the specific effect of informal connections, above and beyond formal professional ties (co-inventor networks) and geographic proximity. We identify a significant and robust effect of informal ties on patent citation. Further, we find that the effect of geographic proximity on knowledge flows is entirely explained by informal social ties and professional networks. We also show that the effect of informal social ties on knowledge flows: has become increasingly important over the last two decades, is higher for older or `forgotten' patents, is more important for new entrepreneurs or `garage inventors', and is somewhat stronger across distant technology fields.
    Keywords: knowledge flows, diffusion, social connectedness, informal networks
    JEL: O33 R12 Z13
    Date: 2020–11

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