Deindustrialisation is a major policy concern in high-income countries not only because of resulting unemployment, but also because of the long-run implications for growth. This column uses evidence from Denmark to analyse whether it is being measured in the right way. A substantial fraction of the decline in manufacturing actually reflects the changing nature of production. Service sector firms that still perform many of the value-adding activities of traditional manufacturing firms should not be overlooked by policymakers.
Andrew B. Bernard, Valerie Smeets, Frederic Warzynski, 22 June 2016
Francisco Buera, Ezra Oberfield, 12 June 2016
Free trade often comes hand in hand with economic growth. The opportunity for gain is relatively small, according to quantitative models that rely on standard static mechanisms. This column introduces a model to study the diffusion of ideas across countries as a means of increasing productivity, and a quantitative assessment of the role of trade in the transmission of knowledge. How much the transmission of knowledge will impact productivity depends on the openness of the trading countries, current stock of knowledge, and a diffusion parameter.
Ross Levine, Chen Lin, Lai Wei, 27 May 2016
Economic theory offers conflicting perspectives on the relationship between insider trading and innovation. To date, the empirical evidence is similarly inconclusive. This column exploits the staggered enforcement of inside trading laws across countries to explore the effect on patenting behaviour. The findings point to a robust positive effect of enforcement on various measures of patenting behaviour. Legal systems that protect outside investors from corporate insiders thus help to foster innovation.
Santiago Caicedo, Robert E. Lucas, Jr., Esteban Rossi-Hansberg , 14 May 2016
A large part of people’s wages rewards the knowledge embedded in them that they use in a production endeavour. Knowledgeable individuals specialise in hard, complicated tasks, while less knowledgeable ones specialise in simpler, more common tasks. This column uses a dynamic model of knowledge accumulation over time and career paths to find an underlying cause for wage inequality in the US over the last few decades. A good explanation for the wage inequality is the discrepancy between the rate of technological change and the rate at which the distribution of knowledge catches up.
Andrew B. Bernard, Toshihiro Okubo, 23 April 2016
Recent research has found that certain firms increase their innovative activity during periods of falling demand. This column investigates this puzzle by analysing how Japanese firms adjust their product mix over the business cycle. During transitions from recession to expansion, firm-level product churning – that is, simultaneously adding and dropping products – increases by 25%. The findings lend support to the ‘trapped factor’ model, in which negative demand shocks see the redeployment of underemployed resources towards innovation processes.
Bronwyn H. Hall, Christian Helmers, Georg von Graevenitz, 23 April 2016
Patent filings have proliferated globally in recent years. While some may see this as a direct consequence of increased innovation, this column uses evidence from the UK to show that patent thickets – patents belonging to many companies protecting overlapping technology – reduce innovation. Patent thickets decrease entry (i.e. first time patenting in an area) by 20%, which is substantial bearing in mind that the average probability of entry into a technology area is only about 1.5%.
Rune Dahl Fitjar, Andrés Rodríguez-Pose, 11 April 2016
Geographic proximity between innovating actors has been shown to facilitate knowledge transfers and spillovers. However, the degree to which these effects are driven by serendipitous encounters has yet to be examined. This column explores this issue for a sample of Norwegian firms. Of the relationships that help firms innovate, fewer than 10% are formed in purely casual circumstances. The results imply that knowledge isn’t so much ‘in the air’; transfers usually result from purposeful search.
Luigi Guiso, Luigi Pistaferri, Fabiano Schivardi, 03 April 2016
Entrepreneurship often concentrates in certain geographic locations, with Silicon Valley the most famous example today. While a large literature focuses on these cross-location differences in entrepreneurial density, questions remain about the supply of entrepreneurial skills across locations. Using Italian data, this column investigates whether selection into entrepreneurship is affected by learning opportunities in adolescence. Those who grow up in an area with higher entrepreneurial density are found to be more likely to become entrepreneurs themselves. They are also more likely to succeed and earn a higher income.
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.
Diane Coyle, 08 February 2016
Digital technologies are having dramatic impacts on consumers, businesses, and markets. These developments have reignited the debate over the definition and measurement of common economic statistics such as GDP. This column examines the measurement challenges posed by digital innovation on the economic landscape. It shows how existing approaches are unable to capture certain elements of the consumer surplus created by digital innovation. It further demonstrates how they can misrepresent market-level shifts, leading to false assessments of production and growth.
Nobuaki Hamaguchi, Keisuke Kondo, 07 February 2016
There is no consensus on the effects of agglomeration on innovation. This column presents new evidence on how knowledge turnover impacts the quality of innovation. Agglomerated regions with active knowledge turnover, as measured by interregional migration of university graduates, tend to have a higher number of patent citations, the metric used for quality of innovation. Cluster policy aimed at active innovation may not be effective if interregional migration of knowledge workers is inactive.
Gerben Bakker, Nicholas Crafts, Pieter Woltjer, 05 February 2016
The Great Depression is considered one of the darkest times for the US economy, but some argue that the US economy experienced strong productivity growth over the period. This column reassesses this performance using improved measures of total factor productivity that allow for comparisons of productivity growth in the Depression era and in later decades. Contrary to Alvin Hansen’s gloomy prognosis of secular stagnation, the US economy was in a very strong position during the 1930s by today’s standards.
Alberto Galasso, Mark Schankerman, 07 January 2016
Economists take a keen interest in patent rights and their effect on innovation. The primary argument for the existence of patents is, after all, that they incentivise entrepreneurs to seek profit through innovating. This column looks at how patent rights affect innovation by small and large firms, finding that the results vary greatly depending on size.
Sari Pekkala Kerr, William Kerr, 12 December 2015
The globalisation of innovation is proceeding at a fast pace. This column argues that the ethnic composition of a firm’s US-based inventive work force is an important factor in whether the firm engages in international collaborations. Collaborative patents are often utilised when a US public company is entering into a new foreign region for innovative work. This is especially notable in markets with weak intellectual property protections.
Jan Lorenz, Fabrizio Zilibotti, Michael König, 19 November 2015
Received wisdom would make you think that you need lots of small firms that are innovating in order to push productivity in an economy. This column provides data suggesting that large firms with high productivity growth can act as technological leaders and supply the economy with a continuous stream of innovations. Overly strong patent protection can significantly reduce growth and increase inequality.
Jay Bhattacharya, Mikko Packalen, 09 November 2015
Academics get ahead in part due to how often their papers are cited. This column argues that the pressure to publish research that garners a lot of citations stifles scientific progress by discouraging exploration. But in the absence of a plausible alternative for measuring the novelty of scientific publications, citation-based measures have persisted. This column presents a new way to rank scientific journals based on novelty as opposed to impact, which could encourage scientists to pursue more innovative work.
Petra Moser, 04 November 2015
The effects of copyright laws on artistic creativity are difficult to identify. This column looks back at 19th century Lombardy and Venetia where, following annexation by Napoleon, basic copyright protection was adopted. The copyright laws raised both the quantity and quality of Italian opera. The findings have important implications for modern debates about protecting intellectual property.
Jeremiah Dittmar, Skipper Seabold, 19 August 2015
Internet-based communications technologies appear to be integral to the diffusion of social movements today. This column looks back at the Protestant Reformation – the first mass movement to use the new technology of the printing press to drive social change. It argues that diffusion of the Reformation was not driven by technology alone. Competition and openness in the media were also crucial, and delivered their biggest effects in cities where political freedom was most limited.
Philippe Aghion, Ufuk Akcigit, Antonin Bergeaud, Richard Blundell, David Hemous, 28 July 2015
In recent decades, there has been an accelerated increase in top income inequality, particularly in developed countries. This column argues that innovation partly accounts for the surge in top income inequality and fosters social mobility. In particular, the positive effect of innovation on social mobility is due to new innovators.