Research and development investment is a major driving force behind innovation and economic growth. Policy measures that aim to boost innovation activities attempt to improve incentives for these investments. This column reports on recent research showing that a firm’s financial strength is strongly correlated with the firm’s expected return to research and development, and therefore has a substantial impact on its research and development investment decision.
Bettina Peters, Mark Roberts, Van Anh Vuong, 01 May 2016
Christian Keuschnigg, 22 March 2016
Innovation drives macroeconomic growth, determines the competitive position of firms, and leads to factor reallocation. This column introduces a new CEPR Press eBook which argues that firms must implement more risky innovations as the economy approaches the technological frontier. The five contributions, from leading economists in the field, suggest that priority should be given to research, selection of firms, and reducing frictions.
Kieu-Trang Nguyen, John Van Reenen, 21 March 2016
Many countries have increased the tax support they provide for research and development (R&D). This column looks at the impact of such support on innovation outcomes in the UK. The findings suggest that tax breaks are an innovation policy that works. UK business R&D would be 10% lower in the absence of the tax breaks.
Michael Kremer, Christopher Snyder, Natalia Drozdoff, 29 January 2016
Many observers believe that pharmaceutical firms prefer to invest in drugs to treat diseases rather than vaccines. This column presents an economic rationale for why such a pattern may emerge for diseases like HIV/AIDS. The population risk of such diseases resembles a Zipf distribution, which makes the shape of the demand curve for a drug more conducive to revenue extraction than for a vaccine. Based on revenue calibrations using US data on HIV risk, the revenue from a drug is about four times greater.
Sourafel Girma, Yundan Gong, Holger Görg, Sandra Lancheros, Christiane Krieger-Boden, 24 July 2015
In the run-up to WTO accession in 2001, China considerably liberalised its policy towards FDI. This column argues that foreign acquisitions contributed significantly to raising export activities and R&D activities, though rather through joint ventures than whole acquisitions.
Johan Hombert, Adrien Matray, 11 July 2015
The rise of China has been identified as a major source of disruption for the manufacturing sector in high-income economies. This column argues that innovation helps firms to escape import competition from low-wage countries. It uses variation in R&D tax credits across years and US states to show that firms' R&D capital stock has a causal effect on their resilience to trade shocks.
Rune Dahl Fitjar, Andrés Rodríguez-Pose, 24 June 2015
Policymakers have used a variety of measures to promote firm innovation but their exact impact remains unclear. This column argues that regional context, proxied by investment in R&D and education levels, is fundamental in shaping the innovative performance of firms. The local socioeconomic environment either favours or limits the innovative capacity of firms, depending on their level of interaction both with neighbouring and distant economic actors.
Çağatay Bircan, Ralph De Haas, 15 May 2015
Innovation enhances economic growth but the mechanisms that underpin the spread of products remain largely unclear. Based on new micro-data from Russia, this column argues that access to credit helps firms to adopt products and production processes that are new to them. However, there is little evidence that bank credit stimulates in-house R&D. Thus, banks can facilitate the diffusion of technologies within developing countries but their role in pushing the technological frontier is limited.
Andrew W. Lo, Richard T. Thakor, 24 March 2015
R&D-intensive firms such as biopharmaceutical companies operate in a competitive and risky environment. This column presents new evidence on how competition affects the investment decision of R&D-intensive firms. An increase in competition will make the firm increase the R&D investment, and as a response the firm will carry more cash and reduce its debt. Also, more competition will increase the idiosyncratic risk of R&D-intensive firms.
Elīna Gaillard, Bas Straathof, 20 January 2015
Tax incentives have become a common policy tool for encouraging firms to spend more on research and development – and the recession has further raised interest in the effectiveness of this policy. This column highlights a new review of the empirical evidence, which suggests that fiscal incentives for R&D only modestly stimulate R&D, while their impact on innovation and economic growth is uncertain.
Yves Zenou, 08 January 2015
Targeting key players in a network can have important effects due to multipliers arising from peer effects. This column argues that this is particularly true for crime –the success in reducing crime in Chicago was due to the targeting of 400 key players rather than spending resources on more general targets. Key-player policies in crime, education, R&D networks, financial networks, and diffusion of microfinance outperform other policies such as targeting the most active agents in a network.
Hongyong Zhang, 21 July 2014
The Chinese government has been actively promoting innovation via policies such as R&D subsidies, tax relief, and location policies. Since 1995, central and local governments have established more than 100 clusters in over 60 cities. This column presents new evidence on the effect of the concentration of firms on product innovation (new products) in the manufacturing industries.
Masayuki Morikawa, 20 July 2014
Innovation is a key driver of productivity growth, but innovation in the service sector has received relatively little attention. This column shows that the total factor productivity gap between Japanese firms with and without innovations is larger in services than in manufacturing. Whereas the percentage of firms holding patents is much higher in manufacturing than in services, trade secrets are just as important in both sectors. These results suggest that the protection of trade secrets makes an important contribution to productivity growth.
Bernhard Dachs, Georg Zahradnik, 06 July 2014
The Global Crisis brought a halt to three decades of R&D internationalisation, in which foreign firms’ share of total R&D expenditure had increased in almost all countries where data is available. However, this column argues that the crisis did not lead to a new global distribution of overseas R&D expenditure, despite the erosion of the EU’s share. The persistence of R&D expenditure is attributed to the costs of relocating R&D and to the autonomy of foreign subsidiaries.
Chiara Criscuolo, Peter N. Gal, Carlo Menon, 26 May 2014
Young firms are known to play a central role in job creation. This column presents the results of a new OECD project on the dynamics of employment (DynEmp) based on an innovative methodology using firm-level data. It confirms that young firms play a central role in creating jobs, and in enhancing growth and innovation. Public policies can help by enabling firms to experiment, and by fostering the reallocation of resources towards the most productive firms. Structural reforms to product, labour, and capital markets, as well as bankruptcy laws that do not overly penalise failure, are particularly relevant.
Paula Stephan, 20 March 2014
US universities resemble high-end shopping malls. They use nice buildings and good reputations to attract good students and good faculty. To pay for this, external funding – once viewed as a luxury – is a necessary condition for tenure and promotion. This column argues that this model emerged at the initiative of universities not the federal government. Today’s stress is the harvest of what universities and faculty sowed in the 1950s and the 1960s.
Theodore H. Moran, Lindsay Oldenski, 04 March 2014
The US has once again ranked among the top two recipient countries for foreign direct investment. This column examines the effects of these large FDI inflows on the US domestic economy. Foreign multinationals are – alongside US-headquartered American multinationals – the most productive and highest-paying segment of the US economy. In addition, they provide positive spillovers to US firms. About 12% of the total productivity growth in the US from 1987 to 2007 can be attributed to productivity spillovers from inward FDI.
Enrica De Cian, Samuel Carrara, Massimo Tavoni, 22 December 2013
After the Fukushima incident in 2011, many countries decided to shrink their nuclear power programmes. This article presents recent research on the optimal role of nuclear power in reducing carbon emissions. Phasing out nuclear power would be costly, since it is currently the cheapest low-carbon alternative to fossil fuels. However, these costs would be largely offset by the implicit subsidy to R&D in renewables, which suffers from innovation externalities. Still, carbon pricing and explicit R&D subsidies would be a more efficient way of determining the future of nuclear power.
Theodore H. Moran, Lindsay Oldenski, 31 October 2013
Criticism of 'offshoring' by US multinationals is widespread among politicians. The underlying assumption is that multinational corporations substitute domestic economic activity for foreign. This column presents evidence that foreign and domestic investment go hand-in-hand at the firm level. This suggests that policies penalising firms for investing abroad will hurt, rather than help, the US economy.
Ursula Fritsch, Holger Görg, 23 September 2013
Outsourcing is a controversial practice. This column looks at its effects on firm-level innovation in emerging markets. The authors find robust evidence that outsourcing is positively related to various innovation measures. However, outsourcing only leads to increased R&D spending in countries where intellectual-property rights are well-protected.