nep-tid New Economics Papers
on Technology and Industrial Dynamics
Issue of 2021‒05‒31
sixteen papers chosen by
Fulvio Castellacci
Universitetet i Oslo

  1. Mission-Oriented Policies and the "Entrepreneurial State" at Work: An Agent-Based Exploration By Giovanni Dosi; Francesco Lamperti; Mariana Mazzucato; Mauro Napoletano; Andrea Roventini
  2. The Direct Employment Impact of Public Investment By Moszoro, Marian
  3. Public Support of Innovative Activity in Small and Large Firms in Mexico By Guerrero, Maribel; Link, Albert
  4. Space policy drives innovation through technological procurement: evidence from Italy By Paolo Castelnuovo; Stefano Clo; Massimo Florio
  5. Do scientific capabilities in specific domains matter for technological diversification in European regions? By Pierre-Alexandre Balland; Ron Boschma;
  6. The Dynamics and Spillovers of Management Interventions: Evidence from the Training Within Industry Program By Nicola Bianchi; Michela Giorcelli
  7. Board Reforms and Innovation By Muhammad Farooq Ahmad; Oskar Kowalewski
  8. The Macroeconomic Effects of a Carbon Tax to Meet the U.S. Paris Agreement Target: The Role of Firm Creation and Technology Adoption By Shapiro Finkelstein, Alan; Metcalf, Gilbert E.
  9. Productivity dispersion and sectoral labour shares in Europe By Martina Lawless; Luke Rehill
  10. Competition and Innovation: the effects of scientist mobility and stronger patent rights By Ganguly, Madhuparna
  11. Uncertainty, Misallocation and the Life-cycle Growth of Firms By Eero Mäkynen; Oskari Vähämaa
  12. Names, diversity and innovation By Kremer, Anna
  13. Digging into the digital divide: Workers' exposure to digitalization and its consequences for individual employment By Genz, Sabrina; Schnabel, Claus
  14. Economic Growth through Worker Reallocation: The Role of Knowledge Spillovers By Eero Mäkynen
  15. Market selection in global value chains By Mundt, Philipp; Cantner, Uwe; Inoue, Hiroyasu; Savin, Ivan; Vannuccini, Simone
  16. Does institutional quality foster economic complexity? The fundamental drivers of productive capabilities By Vu, Trung V.

  1. By: Giovanni Dosi; Francesco Lamperti; Mariana Mazzucato; Mauro Napoletano; Andrea Roventini
    Abstract: We study the impact of alternative innovation policies on the short- and long-run performance of the economy, as well as on public finances, extending the Schumpeter meeting Keynes agent- based model (Dosi et al., 2010). In particular, we consider market-based innovation policies such as R&D subsidies to firms, tax discount on investment, and direct policies akin to the "Entrepreneurial State" (Mazzucato, 2013), involving the creation of public research-oriented firms diffusing technologies along specific trajectories, and funding a Public Research Lab conducting basic research to achieve radical innovations that enlarge the technological opportunities of the economy. Simulation results show that all policies improve productivity and GDP growth, but the best outcomes are achieved by active discretionary State policies, which are also able to crowd-in private investment and have positive hysteresis effects on growth dynamics. For the same size of public resources allocated to market-based interventions, "Mission" innovation policies deliver significantly better aggregate performance if the government is patient enough and willing to bear the intrinsic risks related to innovative activities.
    Keywords: Innovation policy; mission-oriented R&D; entrepreneurial state; agent-based modelling.
    Date: 2021–05–24
  2. By: Moszoro, Marian
    Abstract: We evaluate the direct employment effect of the public investment in key infrastructure— electricity, roads, schools and hospitals, and water and sanitation. Using rich firm-level panel data from 41 countries over 19 years, we estimate that US$1 million of public spending in infrastructure create 3–7 jobs in advanced economies, 10–17 jobs in emerging market economies, and 16–30 jobs in low-income developing countries. As a comparison, US$1 million public spending on R&D yields 5–11 jobs in R&D in OECD countries. Green investment and investment with a larger R&D component deliver higher employment effect. Overall, we estimate that one percent of global GDP in public investment can create more than seven million jobs worldwide through its direct employment effects alone.
    Keywords: Crisis, Public Investment, Infrastructure, Stimulus, Employment, COVID, Recovery
    JEL: E12 E22 E24 H54
    Date: 2021–05–07
  3. By: Guerrero, Maribel (University of North Carolina at Greensboro, Department of Economics); Link, Albert (University of North Carolina at Greensboro, Department of Economics)
    Abstract: The National Science and Technology Council (CONACYT) was established in 1970 by the Mexican government. CONACYT was formed to promote the scientific development and technological modernization of Mexico through developing high-level human resources, encouraging research projects, and disseminating scientific/technological information. In 2009, CONACYT launched the Innovation Stimulus Program (PEI) to foster enterprises’ innovation activities and to encourage collaboration on innovation activities among firms and between firms and public research institutes and higher education institutions. Based on an analysis of project data from the PEI program over the years 2009 through 2014 we found that large firms are more innovative than small firms. And, firms that are more innovative are those that had prior funded research, collaborated with universities in the funded research project, added new employees during the research project, and faced larger markets for their innovations.
    Keywords: Public program evaluation; innovation; R&D; Mexico;
    JEL: H32 O25 O31 O38 O54
    Date: 2021–05–19
  4. By: Paolo Castelnuovo; Stefano Clo; Massimo Florio
    Abstract: To what extent public procurement for mission-oriented policies drives innovation? Space policy is a particularly interesting case study, and we investigate the impact of technological procurement of the Italian Space Agency (ASI) on suppliers’ innovation output. We have built an empirical model that takes advantage of unique data on ASI orders merged with patent and company data of more than 460 firms involved in a procurement relationship with ASI over the period 2004-2018. We combine matching techniques with a diff-in-diff approach with heterogeneous timing in treatment to assess whether becoming a space agency technological supplier has an impact on the extent and quality of firms’ patenting activity. Our findings, that are novel for space policy studies, suggest a statistically significant effect of space agency procurement. The effect is stronger for high-tech suppliers. These results are robust to several alternative specifications and estimation methods and provide evidence about the importance of space policy in enhancing firms’ innovation capacity through the procurement pathway.
    Keywords: Public procurement, space industry, space policy, innovation.
    JEL: C25 H57 O32 O38
    Date: 2021
  5. By: Pierre-Alexandre Balland; Ron Boschma;
    Abstract: Do scientific capabilities in regions translate into technological leadership? This is one of the most pressing questions in academic and policy circles. This paper analyzes the matching of scientific and technological capabilities of 285 European regions. We build on patent and publication records to identify regions that lie both at the scientific and technological frontiers (strongholds), that are pure scientific leaders, pure technological leaders, or just followers in 18 domains. Our regional diversification model shows that local scientific capabilities in a domain are a strong predictor of the development of new technologies in that domain in regions. This finding is particularly relevant for the Smart Specialization policy because it implies that the analysis of domain-specific scientific knowledge can be a powerful tool to identify new diversification opportunities in regions.
    Keywords: science-technology link, regional diversification, relatedness, strongholds, scientific capabilities, technological capabilities, Smart Specialization policy
    JEL: B52 O33 R11
    Date: 2021–05
  6. By: Nicola Bianchi; Michela Giorcelli
    Abstract: This paper examines the long-term and spillover effects of management interventions on firm performance. Under the Training Within Industry (TWI) program, the U.S. government provided management training to firms involved in war production between 1940 and 1945. Using a newly collected panel dataset on all 11,575 U.S. firms that applied to the program, we find that the TWI training had positive and long-lasting effects on firm performance and the adoption of beneficial managerial practices. Moreover, it generated complementarities among different types of training and had positive spillover effects on the supply chain of trained firms.
    JEL: J24 L2 M2 M5 N34 N64 O15 O32 O33
    Date: 2021–05
  7. By: Muhammad Farooq Ahmad (SKEMA Business School – University Cote d’Azur, Avenue Willy Brandt - 59777, Lille, France); Oskar Kowalewski (IESEG School of Management, LEM-CNRS 9221)
    Abstract: We study the effect of board reforms on firms’ research and development (R&D) investments utilizing a sample of 40 countries. Using a difference-in-differences analysis, we find that firmsinvest more in R&D following corporate governance reforms. Of these, two reforms–havingan independent audit committee and board independence–have a greater impact on R&Dinvestment. Additionally, we show that reforms have the largest impact on R&D investmentin hi-tech industries and the health sector.
    Keywords: Corporate Governance, Board Reforms, Innovation, Research and Development
    JEL: G3 O30 O32
    Date: 2021–05
  8. By: Shapiro Finkelstein, Alan; Metcalf, Gilbert E.
    Abstract: We analyze the quantitative labor market and aggregate effects of a carbon tax in a framework with pollution externalities and equilibrium unemployment. Our model incorporates endogenous labor force participation and two margins of adjustment influenced by carbon taxes: firm creation and green production-technology adoption. A carbon-tax policy that reduces carbon emissions by 35 percent - roughly the emissions reductions that will be required under the Biden Administration's new commitment under the Paris Agreement - and transfers the tax revenue to households generates mild positive long-run effects on consumption and output; a marginal increase in the unemployment and labor force participation rates; and an expansion in the number and fraction of firms that use green technologies. In the short term, the adjustment to higher carbon taxes is accompanied by gradual gains in output and consumption and a negligible expansion in unemployment. Critically, abstracting from endogenous firm entry and green-technology adoption implies that the same policy has substantial adverse short- and long-term effects on labor income, consumption, and output. Our findings highlight the importance of these margins for a comprehensive assessment of the labor market and aggregate effects of carbon taxes.
    Keywords: Environmental Economics and Policy
    Date: 2021–05–26
  9. By: Martina Lawless; Luke Rehill
    Abstract: The stability of the labour share of income is a fundamental feature of macroeconomic models, with broad implications for the shape of the production function, inequality, and macroeconomic dynamics. However, empirically, this share has been slowly declining in many countries for several decades, though its causes are subject of much debate. This paper analyses the drivers of labour share developments in Europe at a sectoral level. We begin with a simple shift-share analysis which demonstrates that the decline across countries has been primarily driven by changes within industries. We then use aggregated microdata from CompNet to analyse drivers of sector-level labour shares and to decompose their effects into shifts in the sector average or reallocation of resources between firms. Our main findings are that the advance of globalisation and the widening productivity gap between “the best and the rest” have negative implications for the labour share. We also find that most of the changes are due to reallocation within sectors providing support for the “superstar firms” hypothesis. The finding that globalisation has had a negative impact on the labour share is of relevance for policy in the context of the current backlash against globalisation and reinforces the need to ensure benefits of globalisation and productivity are passed on to workers.
    Keywords: globalisation, labour shares, productivity
    JEL: E25 O40 F62
    Date: 2021–05–26
  10. By: Ganguly, Madhuparna
    Abstract: We analyze the relationship between innovation attributes and competition intensity in a framework of endogenous knowledge spillover due to scientist mobility, and identify the effects of stronger patents on innovation at different levels of product market competition. We �nd non-monotone relations of patenting propensity, innovation incentives and investment in R&D, and monotone relation of scientist mobility, with potential product market competition intensity. The study further shows that stronger patent laws reduce (increase) innovation profitability (R&D expenditure) when the market for the new product is moderately competitive, and have no effect otherwise. The results suggest important implications for patent policy reforms.
    Keywords: Competition intensity; Innovation; Patent strength; Scientist mobility
    JEL: D43 J60 L11 L13 O34
    Date: 2021–05–19
  11. By: Eero Mäkynen (University of Turku, Finland.); Oskari Vähämaa (University of Helsinki, Finland.)
    Abstract: We develop a measure of static misallocation that separates uncertainty from misallocation generated by tax-like distortions. In the Finnish firm-level data, uncertainty accounts for the majority of ex post misallocation and explains a strong decreasing age-dependent trend in it. To understand these observations, we set up a life-cycle model of firm growth where new firms have to learn their productivity. We match our model with the salient features of the data and show that our model implies idiosyncratic distortions, in line with our accounting approach. According to our quantitative results, uncertainty suppresses output by 38%, while misallocation has a 26% negative effect on output.
    Keywords: firm dynamics, uncertainty, misallocation
    JEL: D24 E23 L11 O47
    Date: 2021–05
  12. By: Kremer, Anna
    Abstract: Diversity of a country is often measured by the amount and spread of nationalities that live there. But also within a country, regions vary in their traditions and culture. Cultural homogeneity within communities is mixed up by (internal) migration, that, like international migration, increases diversity of a place. In a novel approach I therefore look at diversity in German municipality associations measured by different family names and investigate the effect it has on the number of generated patents. I show that cultural diversity and openness of a place affect its economic performance positively in terms of innovation also when referring to intra-country differences.
    Keywords: cultural diversity,innovation,openness,phonebook,patents,local level,Germany,kulturelle Diversität,Innovation,Offenheit,Telefonbuch,Patente,lokal,Deutschland
    JEL: O31 R12 Z10 J61 O1
    Date: 2021
  13. By: Genz, Sabrina; Schnabel, Claus
    Abstract: While numerous studies have analyzed the aggregate employment effects of digital technologies, this paper focuses on the employment development of individual workers exposed to digitalization. We use a unique linked employer-employee data set for Germany and a direct measure of the first-time introduction of cutting-edge digitalization technologies in establishments between 2011 and 2016. Applying a matching approach, we compare workers in establishments investing in digital technologies with similar employees in establishments that do not make such an investment. We find that the employment stability of incumbent workers is lower in investing than non-investing establishments, but most displaced workers easily find jobs in other firms, and differences in days in unemployment are small. We also document substantial heterogeneities in the employment effects across skill groups, occupational tasks performed, and gender. Employment reactions to digitalization are most pronounced for both low- and high-skilled workers, for workers with non-routine tasks, and for female workers. Our results underline the importance of tackling the impending digital divide among different groups of workers.
    Keywords: digitalization,employment,separations,skills,tasks
    JEL: J21 J63 O33
    Date: 2021
  14. By: Eero Mäkynen (University of Turku, Finland.)
    Abstract: An establishment can improve its productivity by hiring workers from more productive establishments. Then, how important is worker reallocation for aggregate productivity growth? To study this question, I develop a general equilibrium model where knowledge transmits as workers reallocate from one job to another. The calibrated model suggests that the knowledge diffusion mechanism increases the aggregate productivity growth by 0.14 percentage points and enhances welfare. Additionally, the mechanism significantly amplifies the adverse effect of firing costs on aggregate outcomes.
    Keywords: knowledge diffusion, firm dynamics, worker reallocation, economic growth
    JEL: D24 E23 E24 J62 O33 O47
    Date: 2021–05
  15. By: Mundt, Philipp; Cantner, Uwe; Inoue, Hiroyasu; Savin, Ivan; Vannuccini, Simone
    Abstract: The idea that market selection promotes survival and expansion of the 'fittest' producersis a key principle underlying theories of competition. Yet, despite its intuitive appeal, thehypothesis that companies with superior productivity also exhibit higher growth lacks em-pirical support. One reason for this is that companies are not 'islands' that produce goodsand services in isolation but depend on their suppliers in value chains, implying that exces-sive growth can also originate in the superior productive performance of these value-chainpartners. Neglecting these dependencies in empirical tests of the selection hypothesis leadsto measurement errors and may impair the identification of competition for the market.In this paper, we use data from the World Input-Output Database to capture these globalvalue-chain relationships in an empirical test for market selection, studying competitionbetween country-sectors for a global market share in different economic activities. Com-pared to the conventional view that focuses on individual productivities, our value-chainperspective on the productivity-growth nexus provides stronger empirical support for mar-ket selection. This suggests that the scope of selection reaches beyond the level of individualproducers and requires a systemic analysis of production networks. Our findings contributeto a better understanding of the determinants of selection in competitive environments andalso represent a novel application of global value-chain data.
    Keywords: competition,country-sector dynamics,input-output analysis,replicator dynamics,productivity decomposition
    JEL: C67 D22 L14 L16 L20
    Date: 2021
  16. By: Vu, Trung V.
    Abstract: It is well established in the long-term development literature that deeply rooted institutions are the fundamental drivers of comparative prosperity across the world. This study contributes to this line of inquiry by investigating the extent to which the quality of institutions helps shape international differences in economic complexity – a novel measure of productive capabilities. More specifically, economic complexity corresponds to an enhanced capacity to produce and export a diverse range of sophisticated (high-productivity) products, which is highly predictive of future patterns of growth and development. The central hypothesis is that institutions are linked to higher degrees of economic complexity via strengthening incentives for innovative entrepreneurship, fostering human capital accumulation, and directing human resources towards productive activities. Employing data for up to 115 countries, I consistently obtain precise estimates of the positive effects of institutional quality, measured by the Economic Freedom of the World Index, on economic complexity. The findings highlight the important role of establishing well-functioning institutions in driving structural transformation towards productive activities, which contributes to alleviating the persistence of underdevelopment.
    Keywords: Institutions,Economic freedom,Economic complexity,Productive capabilities
    JEL: O43 O11 H11
    Date: 2021

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