Trade and the Transmission of Technology

This paper integrates earlier studies on the link of productivity and research and development (R&D) in different industries of a closed economy with the more recent emphasis on R&D-driven growth and international trade in open economies. In this framework, technology in the form of product designs is transmitted to other industries, both domestically as well as internationally, through trade in differentiated intermediate goods. I present empirical results based on a new industry-level data set that covers more than 65 percent of the worlds manufacturing output and most of the worlds R&D expenditures between 1970 and 1991. The analysis considers productivity effects from R&D in the domestic industry itself, from R&D in other domestic industries, as well as in the same and other foreign industries. I estimate strong productivity effects both from own R&D spending and R&D conducted elsewhere. The contribution of R&D in the industry itself is about 50 percent in this sample. Domestic R&D in other industries is the source of 30 percent of the productivity increases, and the remaining 20 percent are due to R&D expenditures in foreign industries.     

Private patent protection in the theory of Schumpeterian growth

We develop a Schumpeterian growth model with privately optimal intellectual property rights (IPRs) enforcement and investigate the implications for intellectual property and R&D policies. In our setting, successful innovators undertake costly rent protection activities (RPAs) to enforce their patents. RPAs deter innovators who seek to discover higher quality products and thereby replace the patent holder. RPAs also deter imitators who seek to capture a portion of the monopoly market by imitating the patent holder's product. We investigate the role of private IPR protection by considering the impact of subsidies to RPAs on economic growth and welfare. We find that a larger RPA subsidy raises the innovation rate if and only if the ease of imitation is above a certain level. With regards to welfare, we find that depending on the parameters it may be optimal to tax or subsidize RPAs. Thus a prohibitively high taxation of RPAs is not necessarily optimal. We also show that the presence of imitation strengthens the case for subsidizing R&D.     

Innovation and imitation under imperfect patent protection

The paper develops a model in which the spillover of R&D is a consequence of a rational investment in imitation. The model incorporates the innovator's choice between patenting and secrecy as a protection device. The analysis demonstrates that an increase in patent breadth always discourages resorting to secrecy, whereas the influence of increased patent life is the opposite with large spillovers. An increase in patent life can also reduce innovative activity with large spillovers. Under endogenous imitation, short patents are socially optimal.     

Knowledge disclosure as intellectual property rights protection

We consider the problem of an inventor who discloses knowledge under the threat of a rival who may patent a competing idea. Disclosure diminishes the probability that the rival has of receiving a patent (legal externality) but it also decreases the rival’s marginal R&D cost (knowledge externality). Our results reveal that: (i) when the knowledge externality is ‘large’ (‘small’) relative to the legal one, an increase (decrease) in the patentability standard leads to higher disclosure and promotes R&D and (ii) if subsequent research creates positive external effects, the patentability standard should be set to promote further disclosure and R&D in equilibrium. The impact on the equilibrium configuration of changes in market profits is also examined.     

Accounting for the recent surge in U.S. patenting: changes in R&D expenditures,patent yields,and the high tech sector

We decompose the recent patent increase into components representing (1) an increase in resources made available to research and development, (2) an across-the-board rise in the patent yield of an R&D dollar, and (3) changes in the patent yield in individual industries. Two high tech fields, computer hardware and pharmaceuticals, account for 22 percent of the patent increase. While these two industries had the fastest R&D growth among the industries we study, the pharmaceutical industry experienced a decline in its patent yield, limiting its patent growth. We show that increased R&D spending accounts for 70 percent of the patent increase. We discuss our results in the context of alternative hypotheses of the patent surge. We also compare our results to the anecdotal evidence of firm R&D performance at the industry level.     

Innovator protection and the rate of technical progress

This paper develops two simple models to study the relationship between innovator protection and the rate of technical progress. The first model shows that with an inelastic supply of R&D resources an increase in patent protection may lead to a reduction in the speed of technical progress. This is due to the fact that it now becomes relatively more profitable to invest resources into imitational R&D. The second model shows that with an R&D monopolist the rate of technical progress may be a first increasing and then decreasing function of the time it takes imitators to appear on the market. This is due to the fact that the innovator has little incentive to introduce a second cost reducing innovation, before the first one has been imitated.     

Too Much of a Good Thing? The Economics of Investment in R&D

Research and development is a key determinant of long-run productivity and welfare. A central issue is whether a decentralized economy undertakes too little or too much R&D. We develop an endogenous growth model that incorporates parametrically four important distortions to R&D: the surplus appropriability problem, knowledge spillovers, creative destruction, and duplication externalities. Calibrating the model, we find that the decentralized economy typically underinvests in R&D relative to what is socially optimal. The only exceptions to this conclusion occur when the duplication externality is strong and the equilibrium real interest rate is simultaneously high.     

Dynamic analysis of outsourcing

This paper develops an R&D-based growth model and calibrates the model to aggregate data of the US economy to quantify a structural relationship between patent length, R&D and consumption. Under parameter values that match the empirical flow-profit depreciation rate of patents and other key features of the US economy, extending the patent length beyond 20 years leads to a negligible increase in R&D despite equilibrium R&D underinvestment. In contrast, shortening the patent length leads to a significant reduction in R&D and consumption. Finally, this paper also analytically derives and quantifies a dynamic distortionary effect of patent length on capital investment.     

Ambiguity attitude, R&D investments and economic growth

The process aimed at discovering new ideas is an economic activity the returns from which are intrinsically uncertain. We extend the neo-Schumpeterian growth framework to investigate the role of strong uncertainty in the innovative process. In particular, we postulate that, when deciding upon R&D efforts, investors hold ‘ambiguous beliefs’ about the exact probability of arrival of the next vertical innovation, and that they face ambiguity via the α −MEU decision rule (Ghirardato et al., J Econ Theory 118:133–173, 2004). Along the balanced growth path, the higher the agent’s ambiguity aversion (α), the lower the R&D efforts and the economic performance. Consistent with cross-country empirical evidence, this causal mechanism suggests that, together with the profitability conditions of the economy, different ‘cultural’ attitudes towards ambiguity may help explain the different R&D efforts observed across countries.     

Intellectual Property Rights and Crop-Improving R&D under Adaptive Destruction

This paper studies how the strength of intellectual property rights (IPRs) affects investments in biological innovations when the value of an innovation is stochastically reduced to zero because of the evolution of pest resistance. We frame the problem as a research and development (R&D) investment game in a duopoly model of sequential innovation. We characterize the incentives to invest in R&D under two competing IPR regimes, which differ in their treatment of the follow-on innovations that become necessary because of pest adaptation. Depending on the magnitude of the R&D cost, ex ante firms might prefer an intellectual property regime with or without a “research exemption” provision. The study of the welfare function that also accounts for benefit spillovers to consumers—which is possible analytically under some parametric conditions, and numerically otherwise—shows that the ranking of the two IPR regimes depends critically on the extent of the R&D cost.      

Patents in a Model of Endogenous Growth

This paper examines patent protection in an endogenous-growth model. Our aim is twofold. First, we show how the patent policies discussed by the recent patent-design literature can influence R&D in the endogenous-growth framework, where the role of patents has been largely ignored. Second, we explore how the general-equilibrium framework contributes to the results of the patent-design literature. In a general-equilibrium model, both incentives to innovate and monopoly distortions depend on the proportion of industries that conduct R&D. Furthermore, patents affect the allocation of R&D resources across industries, and patents can distort resources away from industries where they are most productive.     

Industry R&D intensity distributions: regularities and underlying determinants

This paper aims to examine the nature of the distributions of firm R&D intensities within industries and explore the factors that underlie the industry R&D intensity distributions. In particular, following the seminal study by Cohen and Klepper (1992) and using some new and rich data on firm R&D intensities for seven industries across six countries, this study examines the regularities in the industry R&D intensity distributions and demonstrates, based on a simple model of firm R&D, that the industry R&D intensity distributions are governed by the distributions of technological competence, a measure of firm R&D productivity, which corresponds to the notion of the “unobserved R&D-related capabilities” suggested by Cohen and Klepper (1992). This study found that firm R&D intensities within industries are lognormally distributed, displaying a strikingly regular pattern across industries, that the industry distributions of the levels of technological competence are also lognormal, and that, based on the formal model of firm R&D and the notion of the unobserved R&D-related capabilities, the distribution of firm technological competence within an industry underlies the industry's firm R&D intensity distribution.     

Innovation or imitation? The effect of spillovers and competitive pressure on firms’ R&D strategy choice

In this paper a firm’s R&D strategy is assumed to be endogenous and allowed to depend on both internal firm characteristics and external factors. Firms choose between two strategies, either they engage in R&D or abstain from own R&D and imitate the outcomes of innovators. This yields three types of equilibria, in which either all firms innovate, some firms innovate and others imitate, or no firm innovates. Firms’ equilibrium strategies crucially depend on external factors. We find that the efficiency of intellectual property rights protection positively affects firms’ incentives to engage in R&D, while excessive competitive pressure has a negative effect. In addition, smaller firms are found to be more likely to become imitators when the product is homogeneous and the level of spillovers is high. Regarding social welfare our results indicate that strengthening intellectual property protection can have an ambiguous effect. In markets characterized by a high rate of innovation a reduction of intellectual property rights protection can discourage innovative performance substantially. However, a reduction of patent protection can also increase social welfare because it may induce imitation. This indicates that policy issues such as the optimal length and breadth of patent protection cannot be resolved without taking into account specific market and firm characteristics.     

Revisiting measure of R&D spillovers: empirical evidence on OECD countries and industries

Using data for 17 Organisation for Economic Co-operation and Development (OECD) countries over 29 years for 28 industries, this paper estimates industry-wise research and development (R&D) spillovers from the largest R&D investors and the most R&D-intensive industries that contribute 80% of global R&D. In doing so, it tests several assumptions made in the literature, and data rejecting them, proposes a methodology on R&D return estimation devoid of these assumptions. Results show that R&D has substantial spillovers, justifying R&D support policy. Each dollar of R&D generates about 29 cents in spillovers domestically and 4 cents in foreign countries. However, both intra- and inter-industry spillovers vary by industries, implying that the policy of supporting each R&D dollar uniformly across industries is suboptimal. Contrary to industry heterogeneity, the R&D spillovers from an industry do not vary substantially across countries, suggesting that optimal R&D policy across OECD countries might be uniform. An industry-by-industry technology matrix shows that sometimes an idea generates a greater impact on other industries than where it is generated.     

International R&D Rivalry with Spillovers and Policy Cooperation in R&D Subsidies and Taxes

Abstract

We have investigated non-cooperative and jointly optimal R&D policies in the framework of Spencer & Brander (1983) in the presence of R&D spillovers. When R&D activities are strategic substitutes and the R&D game exhibits a positive externality, the result of Spencer & Brander (1983) reverses: the non-cooperative policy is a tax while the jointly optimal policy is a subsidy. Moreover, when R&D activities are strategic complements, the usual result of the prisoners' dilemma in the strategic subsidy game does not hold, implying that a welfare intervention is preferable over laissez-faire. When spillovers are sufficiently large, the joint welfare increases with subsidies being higher than those under non-cooperation.     

中国研发投入的动态演化

R&D investment is enterprises’ strategy based on the market demand on innovative products and its production capacity for them. Enlarging market demand would spur the enterprises’ R&D input and the enhancement of technology state in production ability could have a complex effect on less developed countries’ R&D expenditure. With the measurement of China’s technology state compared to the United States and Japan, this paper explores with the state space model the dynamic effects of determinants on China’s R&D expenditure with the data during 1987–2006. The result illustrates that the growing national income, a proxy of domestic market demand, impedes the further R&D investment in China due to the enormous demand for necessities dominated by lower income class, and the income inequality is the major incentive for R&D investment via the higher pricing on the wealthy group, and that the improvement of technology state reduces the innovation risk and plays an important role in stimulating R&D expenditure.      

Optimal research and development and the cost of business cycles

While research and development (R&D) investment has been procyclical in the post-war period, recent literature suggests that the optimal path for R&D is countercyclical, and that the economy would be better off by subsidizing R&D in recessions. The objective of this paper is to analyze the welfare effects of distortions in the intertemporal allocation of R&D resources and to compare diverse policy interventions so as to improve social welfare. To this end, we introduce a calibrated dynamic stochastic general equilibrium model with Schumpeterian endogenous growth that is capable of explaining the observed procyclicality of R&D. Our results show that the cost of business cycles is lower in the decentralized economy with procyclical R&D than in the efficient allocation with countercyclical R&D. This is because the suboptimal propagation of shocks in the decentralized equilibrium offsets some of the existing steady-state distortions. In this second-best context, countercyclical R&D subsidies have no positive effect on welfare. In contrast, fiscal policies aimed at restoring the optimal steady-state produce large welfare gains.     

Patent portfolios and knowledge flow(s) of photovoltaic companies

The current trend towards green energy is encouraging manufacturers to invest in photovoltaic technologies. In order to guarantee R&D and optimal operational performance, operators should be able to identify the technological advantages of their competitors for the conduct R&D and to ensure adequate technological knowledge intake. Therefore, from the perspective of patent portfolios and knowledge flow(s) of photovoltaic companies, this study adopted two approaches namely, patent counts and patent citations, to discuss the technical capability of R&D portfolios and the technological knowledge flow. Three patent indices were utilised for the integration of R&D portfolios which include: technology attractiveness, relative patent position, and revealed patent advantage. Technological knowledge flow allows construction of a patent citation network through backward citation of patents. Sources and movement directions of technological knowledge are measured by calculating the relative citation propensity. R&D portfolios and knowledge flow are complementary perspectives of each photovoltaic company.     

The Impact of Public Policies on Innovation and Imitation: The Role of R&D Technology in Growth Models

It has been shown under the assumption of linear R&D technology that a government subsidy to imitative (innovative) R&D decreases (increases) imitative effort but increases (decreases) innovative effort, and that strengthening the enforcement of patent laws leads to a decrease in innovative R&D but to an increase in imitative R&D. By replacing the linear R&D technology with a sufficiently convex R&D technology, we have shown that the counter-intuitive results are reversed. In the case of linear R&D technology, the socially optimal R&D policies and activities are indeterminate, but with convex R&D technology, optimal innovation and imitation subsidies would induce the market to generate socially 'balanced' innovative and imitative activities.     

R&D dynamics in the product life cycle

This paper presents a model of a firm's R&D behavior over an entire product life cycle. Beginning with the search stage, modelled as a patent race, firms raise their R&D expenditures until one firm succeeds with a technological breakthrough in creating a new product, market. The following R&D behavior of the successful entrepreneur, devoted to incremental product and process innovations, varies in a characteristic way over the new product's life cycle. Under reasonable conditions, R&D activities rise in the early stages but decline when the market matures. Overall, supply and demand factors combine to determine the R&D time-path.Paper presented at the Sixth Annual Congress of the European Economic Association, Cambridge, U.K., August 31-September 2, 1991. I would like to thank three anonymous referees for helpful comments and suggestions. Financial support of the DFG in Bonn is gratefully acknowledged.