nep-tid New Economics Papers
on Technology and Industrial Dynamics
Issue of 2021‒05‒10
twenty papers chosen by
Fulvio Castellacci
Universitetet i Oslo

  1. Catching up and falling behind: Cross-country evidence on the impact of the EU ETS on firm productivity By Themann, Michael; Koch, Nikolas
  2. May AI Revolution Be Labour-Friendly? Some Micro Evidence from the Supply Side By Damioli, Giacomo; Van Roy, Vincent; Vertesy, Daniel; Vivarelli, Marco
  3. Big Push in Distorted Economies By Buera, Francisco J; Hopenhayn, Hugo; Shin, Yongseok; Trachter, Nicholas
  4. Growing through Competition: The Reduction of Entry Barriers among Chinese Manufacturing Firms By Jiang, Helu; Zheng, Yu; Zhu, Lijun
  5. The effects of publicly supported environmental innovations on firm growth in the European Union By Florian Flachenecker; Martin Kornejew; Mario Lorenzo Janiri
  6. The Impact of Regulation on Innovation By Aghion, Philippe; Bergeaud, Antonin; Van Reenen, John
  7. Artificial Intelligence, Globalization, and Strategies for Economic Development By Korinek, Anton; Stiglitz, Joseph E
  8. Institutions and the Productivity Challenge for European Regions By Ganau, Roberto; Rodríguez-Pose, Andrés
  9. Consumption Access and Agglomeration: Evidence from Smartphone Data By Miyauchi, Yuhei; Nakajima, Kentaro; Redding, Stephen J.
  10. High-speed Rail and the Spatial Distribution of Economic Activity: Evidence from Japan's Shinkansen By Hayakawa, Kazunobu; Koster, Hans R.A.; Tabuchi, Takatoshi; Thisse, Jacques-François
  11. Techies, Trade, and Skill-Biased Productivity By Harrigan, James; Resheff, Ariell; Toubal, Farid
  12. Estimating Production Functions in Differentiated-Product Industries with Quantity Information and External Instruments By De Roux, Nicolas; Eslava, Marcela; Franco, Santiago; Verhoogen, Eric A
  13. Automation, Offshoring and Employment Distribution in Western Europe By Jocelyn Maillard
  14. Innovation and Trade Policy in a Globalized World By Akcigit, Ufuk; Ates, Sina T.; Impullitti, Giammario
  15. Occupational Exposure to Capital-Embodied Technical Change By Caunedo, Julieta; Jaume, David; Keller, Elisa
  16. Surviving the Fintech Disruption By Wei Jiang; Yuehua Tang; Rachel (Jiqiu) Xiao; Vincent Yao
  17. Jobs and technology in general equilibrium: A three elasticities approach By Baldwin, Richard; Haaland, Jan I.; Venables, Anthony
  18. Social capital and economic growth in the regions of Europe By Fitjar, Rune Dahl; Muringani, Jonathan; Rodríguez-Pose, Andrés
  19. Repeated collaboration of inventors across European regions By Gergõ Tóth; Zoltán Elekes; Sándor Juhász; Balázs Lengyel
  20. Technological paradigms, labour creation and destruction in a multi-sector agent-based model By Giovanni Dosi; Marcelo C. Pereira; Andrea Roventini; Maria Enrica Virgillito

  1. By: Themann, Michael; Koch, Nikolas
    Abstract: This paper assesses the potential impact of the European Union Emissions Trading System (EU ETS) on firm productivity. We estimate a stylized version of the neo-Schumpeterian model, which incorporates innovation and productivity catch-up as two potential sources of firm's productivity growth, while at the same time accounting for persistent productivity dispersion within industries. This dynamic model allows us to differentiate the potential effects of the EU ETS on total factor productivity (TFP) depending on the level of firms' technological advancement. The identification approach is based on a difference-in-difference approach exploiting the incomplete participation requirements of the EU ETS and the rich panel structure of firm-level data for eight EU countries from 2002 to 2012. We find evidence that the policy effects on TFP are highly heterogeneous and depend on the distance to the technological frontier, measured as the highest TFP in each year-industry. Productivity effects are positive for firms that are close to the frontier, but they turn negative for firms operating far behind the frontier.
    Keywords: Environmental regulation,EU ETS,productivity,competitiveness
    JEL: D22 Q54 Q58
    Date: 2021
  2. By: Damioli, Giacomo (ISER, University of Essex); Van Roy, Vincent (European Commission, Joint Research Centre); Vertesy, Daniel (European Commission, Joint Research Centre); Vivarelli, Marco (Università Cattolica del Sacro Cuore)
    Abstract: This study investigates the possible job-creation impact of AI technologies, focusing on the supply side, namely the providers of the new knowledge base. The empirical analysis is based on a worldwide longitudinal dataset of 3,500 front-runner companies that patented the relevant technologies over the period 2000-2016. Obtained from GMM-SYS estimates, our results show a positive and significant impact of AI patent families on employment, supporting the labour-friendly nature of product innovation in the AI supply industries. However, this effect is small in magnitude and limited to service sectors and younger firms, which are the leading actors of the AI revolution. Finally, some evidence of increasing returns seems to emerge; indeed, the innovative companies which are more focused on AI technologies are those obtaining the larger impacts in terms of job creation.
    Keywords: innovation, technological change, patents, employment, job-creation
    JEL: O33
    Date: 2021–04
  3. By: Buera, Francisco J; Hopenhayn, Hugo; Shin, Yongseok; Trachter, Nicholas
    Abstract: Why don't poor countries adopt more productive technologies? Is there a role for policies that coordinate technology adoption? To answer these questions, we develop a quantitative model that features complementarity in firms' technology adoption decisions: The gains from adoption are larger when more firms adopt. When this complementarity is strong, multiple equilibria and hence coordination failures are possible. More important, even without equilibrium multiplicity, the model elements responsible for the complementarity can substantially amplify the effect of distortions and policies. In what we call the Big Push region, the impact of idiosyncratic distortions is over three times larger than in models without such complementarity. This amplification enables our model to nearly fully account for the income gap between India and the US without coordination failures playing a role.
    Keywords: Big push; complementarities; industrial policy; Technology adoption
    JEL: L11 L16 O14 O25
    Date: 2021–03
  4. By: Jiang, Helu; Zheng, Yu; Zhu, Lijun
    Abstract: Exploiting the gradualism of the Chinese economic reforms and cross-sectional variations in entry rates, we show empirical evidence from firm-level data that industries with higher entry rates achieve higher growth and a more competitive market structure in subsequent years. We then embed firm entry into a model of endogenous productivity and market structure with heterogeneous firms and sectors, and calibrate it to the Chinese manufacturing sector in 2004-7. We find the positive impact of entry on growth is achieved primarily through a pro-competitive effect, whereby entry induces endogenously a larger fraction of industries to be more competitive in the economy. We quantify the contribution on growth from the reduction of entry barriers associated with the state-owned enterprise reforms in the late 1990s and early 2000s and find it explains 20% of the aggregate growth of the manufacturing sector from 2004-7. More generally, we highlight the critical role of reducing entry barriers in promoting competition and growth in developing countries.
    Keywords: Endogenous Growth; Entry Barriers; Firm Dynamics; Firm entry
    JEL: D22 D43 O11 O30 O47
    Date: 2021–02
  5. By: Florian Flachenecker (European Commission, Joint Research Centre, Brussels, Belgium); Martin Kornejew (University of Bonn, Bonn, Germany); Mario Lorenzo Janiri (European Commission, Joint Research Centre, Brussels, Belgium)
    Abstract: Enabling innovations with environmental benefits is considered crucial to align economic and environmental objectives. We estimate the economic effects of publicly supported environmental innovations for the business economy of 13 Member States of the European Union. Using an instrumental variable approach to address the inherent endogeneity problem, we find that the average publicly supported environmental innovation increases firm employment by 9%, turnover by 12% and market share by 12% over a two-year period. Notwithstanding country and sector heterogeneity, essentially all countries and sectors show positive effects. Moreover, the results are not driven by highly innovative firms but are based on small and medium-sized enterprises with limited innovation activity. Thus, this paper provides robust evidence that public financial support for environmental innovations can align economic and environmental objectives for a broad set of firms, sectors and countries. Public policy supporting environmental innovations might therefore facilitate the recovery and transition to a more sustainable economy.
    Keywords: eco-innovation; environmental innovation; competitiveness; firm growth; European Union
    JEL: C26 O31 O44 Q32 Q56
    Date: 2021–06
  6. By: Aghion, Philippe; Bergeaud, Antonin; Van Reenen, John
    Abstract: Does regulation affect the pace and nature of innovation and if so, by how much? We build a tractable and quantifiable endogenous growth model with size-contingent regulations. We apply this to population administrative firm panel data from France, where many labor regulations apply to firms with 50 or more employees. Nonparametrically, we find that there is a sharp fall in the fraction of innovating firms just to the left of the regulatory threshold. Further, a dynamic analysis shows a sharp reduction in the firm's innovation response to exogenous demand shocks for firms just below the regulatory threshold. We then quantitatively fit the parameters of the model to the data, finding that innovation at the macro level is about 5.4% lower due to the regulation, a 2.2% consumption equivalent welfare loss. Four-fifths of this loss is due to lower innovation intensity per firm rather than just a misallocation towards smaller firms and lower entry. We generalize the theory to allow for changes in the direction of R&D, and find that regulation's negative effects only matter for incremental innovation (as measured by citations and text-based measures of novelty). A more regulated economy may have less innovation, but when firms do innovate they tend to "swing for the fence" with more radical (and labor saving) breakthroughs.
    Keywords: firm size; Innovation; patents; Regulation
    JEL: J8 L11 L25 L51 O31
    Date: 2021–01
  7. By: Korinek, Anton; Stiglitz, Joseph E
    Abstract: Progress in artificial intelligence and related forms of automation technologies threatens to reverse the gains that developing countries and emerging markets have experienced from integrating into the world economy over the past half century, aggravating poverty and inequality. The new technologies have the tendency to be labor-saving, resource-saving, and to give rise to winner-takes-all dynamics that advantage developed countries. We analyze the economic forces behind these developments and describe economic policies that would mitigate the adverse effects on developing and emerging economies while leveraging the potential gains from technological advances. We also describe reforms to our global system of economic governance that would share the benefits of AI more widely with developing countries.
    Keywords: artificial intelligence; inequality; labor-saving progress; terms-of-trade losses
    JEL: D63 F63 O25 O32
    Date: 2021–02
  8. By: Ganau, Roberto; Rodríguez-Pose, Andrés
    Abstract: Europe has witnessed a considerable labour productivity slowdown in recent decades. Many potential explanations have been proposed to address this productivity 'puzzle'. However, how the quality of local institutions influences labour productivity has been overlooked by the literature. This paper addresses this gap by evaluating how institutional quality affects labour productivity growth and, particularly, its determinants at the regional level during the period 2003-2015. The results indicate that institutional quality influences regions' labour productivity growth both directly -as improvements in institutional quality drive productivity growth- and indirectly -as the short- and long-run returns of human capital and innovation on labour productivity growth are affected by regional variations in institutional quality.
    Keywords: Europe; Human Capital; Innovation; institutional quality; labour productivity; Physical Capital; regions
    JEL: E24 J24 O47 R11
    Date: 2021–03
  9. By: Miyauchi, Yuhei; Nakajima, Kentaro; Redding, Stephen J.
    Abstract: We provide new theory and evidence on the role of consumption access in understanding the agglomeration of economic activity. We combine smartphone data that records user location every 5 minutes of the day with economic census data on the location of service-sector establishments to measure commuting and non-commuting trips within the Greater Tokyo metropolitan area. We show that non-commuting trips are frequent, more localized than commuting trips, strongly related to the availability of nontraded services, and occur along trip chains. Guided by these empirical findings, we develop a quantitative urban model that incorporates travel to work and travel to consume non-traded services. Using the structure of the model, we estimate theoretically-consistent measures of travel access, and show that consumption access makes a sizable contribution relative to workplace access in explaining the observed variation in residents and land prices across locations. Undertaking counterfactuals for changes in travel costs, we show that abstracting from consumption trips leads to a substantial underestimate of the welfare gains from a transport improvement (because of the undercounting of trips) and leads to a distorted picture of changes in travel patterns within the city (because of the different geography of commuting and non-commuting trips).
    Keywords: agglomeration; Transportation; Urbanization
    JEL: R2 R3 R41
    Date: 2021–02
  10. By: Hayakawa, Kazunobu; Koster, Hans R.A.; Tabuchi, Takatoshi; Thisse, Jacques-François
    Abstract: We investigate the effects of high-speed rail (HSR) on the location of economic activity. We set up a spatial quantitative general equilibrium model that incorporates spatial linkages between firms (including manufacturing and services), agglomeration economies, as well as commuting and migration. The model is estimated for Japan in order to investigate the impacts of the Shinkansen, i.e., the first HSR ever built. We show that traveling by train strengthens firms' linkages, but is less important for commuting interactions. The Shinkansen increases welfare by about 5%. We show that extensions of the Shinkansen network may have large effects (up to a 30% increase in employment) on connected municipalities, although the effects are smaller for places with higher fixed costs. Our counterfactuals show that, without the Shinkansen, Tokyo and Osaka would be 6.3% and 4.4% larger, respectively.
    Keywords: agglomeration; commuting; employment; high-speed rail; Population
    JEL: D04 H43 R42
    Date: 2021–02
  11. By: Harrigan, James; Resheff, Ariell; Toubal, Farid
    Abstract: We study the impact of firm-level choices on ICT, R&D, exporting and importing on the evolution of productivity, its bias towards skilled workers, and implications for labor demand. We use a novel measure of firm-level R&D and ICT adoption: employment of "techies" who perform these tasks. We develop methodology for estimating nested-CES production functions and for measuring both Hicks-neutral and skill-augmenting technology differences at the firm level. Using administrative data on French firms we find that techies, exporting and importing raise skill-biased productivity. In contrast, only ICT techies raise Hicks-neutral productivity. On average, higher firm-level skill biased productivity hardly affects low-skill employment, even as it raises relative demand for skill, due to the cost-reducing effect. ICT accounts for large increases in aggregate demand for skill, mostly due to the effect on firm size, less so through within-firm changes. Exporting, importing, and R&D have smaller aggregate effects.
    Keywords: Globalization; ICT; labor demand; Outsourcing; productivity; R&D; skill augmenting; Skill bias; STEM skills; techies
    JEL: D2 D24 F1 F16 F6 F66 J2 J23 J24 O52
    Date: 2021–02
  12. By: De Roux, Nicolas; Eslava, Marcela; Franco, Santiago; Verhoogen, Eric A
    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.
    JEL: D24 L1 L65 O14
    Date: 2021–01
  13. By: Jocelyn Maillard (Univ Lyon, Université Lumière Lyon 2, GATE UMR 5824. 93, Chemin des Mouilles, F-69130 Ecully, France)
    Abstract: This paper investigates the effects of automation and offshoring on the dynamics of the occupational distribution of employment with a focus on Western Europe between 2000 and 2016. I use a general equilibrium model with three regions, three types of workers, ICT capital, trade in final goods and endogenous offshoring. Fed with exogenous measures of ICT-capital prices and trade costs, the model replicates key features of the data. It matches the observed dynamics of offshoring to Eastern Europe and Asian countries. It also reproduces accurately the observed polarization of the labor market: abstract and manual labor increase while routine labor falls. A counterfactual experiment reveals that automation is the main driver of polarization. Since it is also the only factor that drives individuals to become abstract (high-skill) workers, it is welfare enhancing. The effects of falling trade costs on labor polarization are smaller, but imply welfare gains.
    Keywords: Automation, offshoring, labor-market polarization, European employment distribution
    JEL: F16 F41 J24 J62 O33
    Date: 2021
  14. By: Akcigit, Ufuk; Ates, Sina T.; Impullitti, Giammario
    Abstract: What is the role of innovation policy in open economy? We address this question employ- ing a new innovation-driven growth model with two large open economies at different stages of development. We examine the implications of the U.S. Research and Experimentation Tax Credit, introduced in 1981, and alternative protectionist policies. Key findings are: First, the tax credit generates substantial gains over medium and long horizons. Second, protectionist measures generate large dynamic losses by distorting the firms' innovation incentives. Third, the optimal R&D subsidy decreases in trade openness. Fourth, the optimal unilateral import tariff is zero for all policy horizons.
    Keywords: economic growth; innovation policy; Open economy; trade policy
    JEL: F13 F43 F60 O40
    Date: 2021–02
  15. By: Caunedo, Julieta; Jaume, David; Keller, Elisa
    Abstract: Much of technological progress is embodied in capital and realized through the availability of new, more efficient, capital goods. How does capital-embodied technical change (CETC) impacts the labor market? We draw on the idea that workers' occupations are a suitable unit of analysis to address this question and study workers' exposure to CETC at the occupational level. To do so, we construct a novel dataset of the stocks of different types of capital used for production in each occupation. Our dataset yields the first available estimates of CETC and of the elasticity of substitution between capital and labor in each occupation. The latter determines occupational heterogeneity in workers' exposure to CETC, as summarized by the cross-price elasticity of labor demand to the cost of capital. We document that exposure to CETC is U-shaped across occupations ranked by their skill requirements, and jointly with our measures of CETC in each occupation, it rationalizes the occupational employment gains and losses in the US over the last 40 years. We evaluate the impact of CETC in a general equilibrium model of endogenous sorting of workers of different demographic characteristics across occupations of different CETC and equilibrium exposure. We find that CETC explains 91% of labor reallocation in the US between 1982 and 2015. It is responsible for almost all of the gains in employment in high-skill occupations and for 74% of the employment losses in middle-skill occupations.
    JEL: O13 O47 Q10
    Date: 2021–02
  16. By: Wei Jiang; Yuehua Tang; Rachel (Jiqiu) Xiao; Vincent Yao
    Abstract: This paper studies how demand for labor reacts to financial technology (fintech) shocks based on comprehensive databases of fintech patents and firm job postings in the U.S. during the past decade. We first develop a measure of fintech exposure at the occupation level by intersecting the textual information in job task descriptions and fintech patents. We then document a significant decline of job postings in the most exposed occupations, and an increase in industry as well as geographical concentration of these occupations. Firms resort to an upskilling strategy in face of the fintech disruption, requiring “combo” (finance and software) skills, higher education attainments, and longer work experiences in the hiring of fintech-exposed jobs. Financial firms and those with high innovation outputs are able to offset the disruptive effect from the fintech shock. Among innovating firms, however, only inventors (but not acquisition-driven innovators) experience growth in hiring, sales, investment, and enjoy better returns on assets.
    JEL: G30 J23 O33
    Date: 2021–04
  17. By: Baldwin, Richard; Haaland, Jan I.; Venables, Anthony
    Abstract: The impact of technological progress on jobs and wages has been subject to much empirical and some theoretical work. However, most of this literature has not addressed the general equilibrium interplay between the productive factors that are affected, the sectors in which these factors are used, and the consequent changes in the structure of employment and factor returns. This paper draws on tools from general equilibrium trade theory to provide an integrated approach to these issues. The analysis centres around three key elasticities linking technological change to jobs â?? the jobs-displacing substitution effect, the job-creating demand effect, and the general-equilibrium effects, through which factors are reallocated between sectors. The results highlight the role of relative factor intensities and the importance of openness in determining the effects of technology on jobs, wages, and structural change. The implications of interaction between non-tradable and tradable sectors are analysed.
    Keywords: employment; factor intensity; technical change; wages
    JEL: F11 F16 J30 O33
    Date: 2021–01
  18. By: Fitjar, Rune Dahl; Muringani, Jonathan; Rodríguez-Pose, Andrés
    Abstract: Social capital is an important factor explaining differences in economic growth among regions. However, the key distinction between bonding social capital, which can lead to lock-in and myopia, and bridging social capital, which promotes knowledge flows across diverse groups, has been overlooked in growth research. In this paper, we address this shortcoming by examining how bonding and bridging social capital affect regional economic growth, using data for 190 regions in 21 EU countries, covering eight waves of the European Social Survey between 2002 and 2016. The findings confirm that bridging social capital is linked to higher levels of regional economic growth. Bonding social capital is highly correlated with bridging social capital and associated with lower growth when this is controlled for. We do not find significantly different effects of bonding social capital in regions with more or less bridging social capital, or vice versa. We examine the interaction between social and human capital, finding that bridging social capital is fundamental for stimulating economic growth, especially in low-skilled regions. Human capital also moderates the relationship between bonding social capital and growth, reducing the negative externalities imposed by excessive bonding.
    Keywords: bonding; bridging; economic growth; EU; regions; social capital
    JEL: O17 O43 R11
    Date: 2021–03
  19. By: Gergõ Tóth (Agglomeration and Social Networks Lendület Research Group, Centre for Economic-and Regional Studies, Budapest, Hungary and Spatial Dynamics Lab, University College Dublin, Dublin, Ireland); Zoltán Elekes (Agglomeration and Social Networks Research Group, Centre for Economic and Regional Studiesand Centre for Regional Science at Umea University (CERUM), Umea University, 90187 Umea, Sweden); Sándor Juhász (NETI Lab, Corvinus Institute for Advanced Studies, Budapest Corvinus University, Budapest, Hungary); Balázs Lengyel (Agglomeration and Social Networks Lendület Research Group, Centre for Economic-and Regional Studies, Budapest, Hungary;International Business School Budapest, Budapest, Hungaryand NETI Lab, Corvinus Institute for Advanced Studies, Budapest Corvinus University, Budapest, Hungary)
    Abstract: This paper explores the spatial patterns and underlying determinants of repeated inventor collaboration across European NUTS 3 regions. It is found that only a small fraction of co-inventor linkages across regions are repeated, while community detection reveals that these collaborations are clustered in geographical space more intensively compared with collaboration in general. Additional results from gravity modelling indicate that links in the inter-regional co-patenting network emerge mainly through the triadic collaboration of regions, while geographical proximity becomes the most influential factor for repeating co-inventor ties. In addition to that, the combination of technological similarity and shared third partner regions offer a premium for the likelihood of repeating collaboration, but only when geographical proximity is present as an enabler.
    Keywords: collaborative knowledge production; inter-regional collaboration; co-inventor network; repeated collaboration; European Research Area; gravity model
    JEL: D85 O31 O43 O52 R11 R58
    Date: 2021–03
  20. By: Giovanni Dosi; Marcelo C. Pereira; Andrea Roventini; Maria Enrica Virgillito
    Abstract: This paper presents an agent-based model (ABM) of endogenous arrival of technological paradigms and new sectors entailing different patterns of labour creation and destruction, as well as of consumption dynamics. The model, building on the labour-augmented K+S ABM, addresses the long-term patterns of labour demand emerging from heterogeneous forms of technical change. It provides a multi-level, integrated perspective on so called scenarios of the future of work, currently often restricted or to firm-level or to short-time sectoral analyses, and studies the conditions under which labour creation and destruction tend to balance. It is a relatively fair and stable distribution of income granted by a Fordist-type of regulation of the labour market that guarantees that the model never reaches stages of full technological unemployment. Patterns of coordination between technical change and aggregate demand are also ensured by the increasing product complexity which keeps on absorbing the labour force.
    Keywords: Technical change; technological unemployment; structural change; consumption patterns.
    Date: 2021–05–06

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