Learning by doing,spillovers and shakeouts

This paper studies industry evolution driven by non strategic learning by doing and spillovers. We characterize a dynamic process of cost and output changes and its effect on welfare and industry profits. The paper gives conditions for shakeouts to occur and analyzes the key factors affecting these conditions. Since shakeouts could lead to a long-run social loss due to higher market concentration, there is a role for a government to play in limiting unnecessary shakeouts. The most effective way to do so is to enhance spillovers.JEL Classification: L11, L13, O31Correspondence to: Michael TroegeWe would like to thank Hans Mewis, Christophe Moussu and an anonymous referee for valuable comments and suggestions. We also benefited from comments of seminar participants at WZB, Humboldt University, Northwestern University and the EEA/ESEM 1999 meetings. Part of the research was carried out while Michael Tröge was visiting Northwestern University. Financial support by the German Research Council (DFG) is gratefully acknowledged.     

Technology transfers,foreign investment and productivity spillovers

This paper explores the relationship between foreign direct investment (FDI) and the productivity of host country domestic firms. We rely on a specially designed survey of over 4000 manufacturing firms in Vietnam, and separate out productivity gains along the supply chain (obtained through direct transfers of knowledge/technology between linked firms) from productivity effects through indirect FDI spillovers. In addition to identifying indirect vertical productivity spillovers from FDI, our results show that there are productivity gains associated with direct linkages between foreign-owned and domestic firms along the supply chain not captured by commonly used measures of spillovers. This includes evidence of productivity gains through forward linkages for domestic firms which receive inputs from foreign-owned firms.     

On R&D spillovers, multiple equilibria and indeterminacy

Empirical studies often find significant and positive R&D spillovers across firms. In this note, we incorporate this spillover effect into a scale-invariant quality-ladder model. We find that the modified model features multiple steady states (1) a high-R&D steady state, (2) a low-R&D steady state and (3) a zero-R&D steady state. As for dynamics, when R&D spillovers are small, only the zero-R&D steady state is stable, and it emerges as a no-growth trap. In this case, the economy is subject to sunspot fluctuations around this trap (i.e., local indeterminacy). When R&D spillovers are large, both the zero-R&D and high-R&D steady states are stable and locally indeterminate. In this case, increasing patent breadth may cause the high-R&D steady state to become unstable and the economy to converge to the no-growth trap. Therefore, strengthening patent protection may stifle innovation through the occurrence of a bifurcation.     

Exporting, linkages and productivity spillovers from foreign direct investment

Abstract.  In this paper we analyse productivity spillovers from foreign direct investment using firm-level panel data for U.K. manufacturing industries from 1992 to 1999. We investigate spillovers through horizontal, backward, and forward linkages; distinguish spillovers from export-oriented vs domestic-market-oriented FDI; and allow for differing effects, depending on domestic firms' export activities. The results suggest that the mechanisms through which spillovers affect domestic firms are very complex and that there are substantial differences in spillover benefits for domestic exporters and non-exporters, and from different types of inward investment.     

Precious metals,oil and the exchange rate: contemporaneous spillovers

We investigate the contemporaneous spillovers among precious metals, crude oil and the US$ exchange rate. We contend that conventional reduced-form vector autoregressive (VAR) models based on lead/lag relations do not fully capture the interactions among these series as these models ignore the contemporaneous effects. Using a Structural VAR model, we identify these contemporaneous spillovers, which are shown to be strong and asymmetric. We further show that not taking into consideration the contemporaneous interactions among these assets leads to inaccurate findings and inevitably to inaccurate interpretations of the causal relations among them.     

Endogenous spillovers and incentives to innovate

Summary. We present a new approach to endogenizing technological spillovers. Firms choose levels of a cost-reducing innovation from a continuum before they engage in competition for each other's R&D-employees. Successful bids for the competitor's employee then result in higher levels of cost reduction. Finally, firms enter product market competition. We apply the approach to the long-standing debate on the effects of the mode of competition on innovation incentives. We show that incentives to acquire spillovers are stronger and incentives to prevent spillovers are weaker under quantity competition than under price competition. As a result, for a wide range of parameters, price competition gives stronger innovation incentives than quantity competition. Received: February 1, 1999; revised version: November 14, 2001     

The propagation of financial turbulence: interdependence,spillovers, and direct and indirect effects

We investigate the propagation of financial turbulence via trade, capital flows, and distance channels in the pre-crisis and Global Financial Crisis periods by modeling spillover and interdependence effects, using spatial econometric techniques. Financial turbulence is proxied by the ratio of nonperforming loans to total loans in a country. Spillover effects are defined as significant changes in the linkages between countries due to a shock, and interdependence effects as strong linkages among pairs of countries independent of shocks. Using annual data of 40 countries from 2003 to 2010, we find that interdependence and spillover effects should be jointly analyzed. Furthermore, our results suggest that the capital flows channel is more important than the other two channels in capturing propagation of financial turbulence. By deriving what is known in the spatial econometrics literature as direct and indirect effect estimates, we show that the marginal effects of macroeconomic variables (like GDP growth, inflation, and credit growth) on financial turbulence take different forms during a crisis than in tranquil periods.     

International R&D spillovers and institutions

The empirical analysis in “International R&D Spillovers” [Coe, D., Helpman, E., 1995. International R&D Spillovers. European Economic Review, 39, 859-887] is first revisited on an expanded data set that we have constructed for the purpose of this study. The new estimates confirm the key results reported in Coe and Helpman about the impact of domestic and foreign R&D capital stocks on TFP. In addition, we show that domestic and foreign R&D capital stocks have measurable impacts on TFP even after controlling for the impact of human capital. Furthermore, we extend the analysis to include institutional variables. Our results suggest that institutional differences are important determinants of TFP and that they impact the degree of R&D spillovers. Countries where the ease of doing business and the quality of tertiary education systems are relatively high tend to benefit more from their own R&D efforts, from international R&D spillovers, and from human capital formation. Strong patent protection is associated with higher levels of total factor productivity, higher returns to domestic R&D, and larger international R&D spillovers. Finally, countries whose legal systems are based on French and, to a lesser extent, Scandinavian law benefit less from their own and foreign R&D capital than countries whose legal origins are based on English or German law.     

Government debt spillovers and creditworthiness in a federation

Estimates are presented for the impact of debt accumulation by the central and subcentral governments of a federation on the creditworthiness of other federation member governments. The estimates, calculated using an ordered probit model and Canadian provincial data, indicate that debt accumulation by the central government has reduced the creditworthiness of indebted provincial governments. Interprovincial debt accumulation effects are negative but relatively small, except for the debt of the largest province, which has a strong positive effect on the creditworthiness of the other provinces. These findings may have implications for other federations and associated jurisdictions, such as the European Union. JEL Classification: H63, F36
Les effets de retombée de la dette gouvernementale et la cote de crédit dans une fédération. On calcule l'impact de l'accumulation de la dette par les gouvernements fédéral et sub-fédéraux dans une fédération sur la cote de crédit des autres gouvernements de la fédération. Ces calibrations, à l'aide d'un modèle probit en utilisant les données provinciales canadiennes, montrent que l'accumulation de la dette par le gouvernement central a réduit la cote de crédit des gouvernements provinciaux endettés. Les effets trans-provinciaux de l'accumulation de la dette sont négatifs mais relativement faibles, sauf dans le cas de la province la plus grande, laquelle a un fort effet sur la cote de crédit des autres provinces. Ces résultats peuvent avoir des implications pour d'autres fédérations comme l'Union Européenne.     

Risk capital,private credit,and innovative production

Abstract Although ideas production plays a critical role for growth, there has been only a modicum of research on the role played by financial forces in fostering new inventions. Drawing on Schumpeterian growth theory, this paper tests the roles of risk capital and private credit in stimulating knowledge production. Using panel data for 77 countries over the period 1965–2009, we find that countries with more developed financial systems are more innovative. A stronger patent protection framework, on the other hand, curbs innovative production.     

Correlations and volatility spillovers across commodity and stock markets: Linking energies,food, and gold

This paper employs a VAR-GARCH model to investigate the return links and volatility transmission between the S&P 500 and commodity price indices for energy, food, gold and beverages over the turbulent period from 2000 to 2011. Understanding the price behavior of commodity prices and the volatility transmission mechanism between these markets and the stock exchanges are crucial for each participant, including governments, traders, portfolio managers, consumers, and producers. For return and volatility spillover, the results show significant transmission among the S&P 500 and commodity markets. The past shocks and volatility of the S&P 500 strongly influenced the oil and gold markets. This study finds that the highest conditional correlations are between the S&P 500 and gold index and the S&P 500 and WTI index. We also analyze the optimal weights and hedge ratios for commodities/S&P 500 portfolio holdings using the estimates for each index. Overall, our findings illustrate several important implications for portfolio hedgers for making optimal portfolio allocations, engaging in risk management and forecasting future volatility in equity and commodity markets.     

Deregulation,news releases,and price discovery

We hypothesize that the firm’s regulatory environment influences the sensitivity of its equity value to information. Using intraday stock price data of utilities operating in differing regulatory environments we test for systematic differences between the responsiveness of stock prices of utility firms operating in deregulated and regulated environments to a common information set. Our findings reveal sharp differences in responses, with those of utilities operating in deregulated environments the strongest, and the responses of utilities in highly regulated environments the weakest. While the evidence supports our hypothesis, in a broader sense, the evidence suggests that deregulation aids in the process of price discovery. We also find evidence that suggests that deregulation, per se, does not lead to higher stock price volatility.      

Informational spillovers and the coordination of speculative investments

Abstract. The influence of informational spillovers on the entrepreneur's incentive to undertake reversible investment opportunities is considered. It is shown how investment activity can be driven by the influence that the prospect of social learning has on the option value of investment. In this context, episodes of high investment activity result from a speculative motive, and the expected short‐run profitability of new investment opportunities may inadequately reflect the entrepreneurs’ incentive to invest.     

Knowledge spillovers in biotechnology: sources and incentives

This paper sheds light on the questions, Why does knowledge spill over? and How does knowledge spill over? The answer to these questions we suggest lies in the incentives confronting scientists to appropriate the expected value of their knowledge considered in the context of their path-dependent career trajectories. In particular, we focus on the ability of scientists to appropriate the value of knowledge embedded in their human capital along with the incentive structure influencing if and how scientists choose to commercialize their knowledge. We conclude that the spillover of knowledge from the source creating it, such as a university, research institute, or industrial corporation, to a new-firm startup facilitates the appropriation of knowledge for the individual scientist(s) but not necessarily for the organization creating that new knowledge in the first place.     

Mark-ups, economies of scale and the role of knowledge spillovers in OECD industries

Using R&D-based models of economic growth as a foundation, this paper argues that market-driven knowledge creation is necessarily linked as an engine of productivity growth to economies of scale and market-power. A cost function and factor demand model is applied to a cross-country industry data set to study market-power, economies of scale and the role of knowledge in an integrated approach. Empirical results reveal the presence of market-power and economies of scale in all of the industries investigated. R&D and spillovers explain some of the productivity growth observed. Spillovers are identified as an external source of economies of scale.     

Buffer stocks,exchange rates and deviations from purchasing power parity

In this paper an extension of the Monetary Approach to the Exchange Rate reduced form is presented and estimated for four bilateral exchange rates with data from the recent floating experience. The extension incorporates two features: a more sophisticated modelling of money demand, using theCarr andDarby money demand specification, and allowing for deviations from purchasing power parity. The estimated results are supportive of our extended specification and we conclude by arguing that care should be taken in specifying the underlying structural relationships in asset reduced form exchange rate equations.     

Non-cooperative and cooperative policy reforms under uncertainty and spillovers

When countries need to implement costly economic policy reforms, these often imply uncertainties about their effectiveness for the home country and their spillovers to other countries. We develop a model to show that under these circumstances countries implement too few or too many policy reforms. From a social perspective, too many reforms follow if the spillover effects of reforms become sufficiently uncertain. Since centralization of policies to correct inefficient policies is often not possible, we look for alternative instruments that can restore the efficient level of reforms. We compare subsidizing reform efforts with insuring against bad outcomes, and argue that subsidies are advantageous in terms of requiring less information for implementation.     

R&D spillovers, information technology and telecommunications, and productivity in ASIA and the OECD

This paper examines the role research and development (R&D) plays in technology progress for a sample of OECD and Asian economies from 1980 to 1995. An empirical model is estimated which relates total factor productivity to domestic and foreign R&D activity, trade, and information technology and telecommunications (ITT). Model estimates confirm a positive relationship between national productivity and R&D activity exists in the long run. Further, the benefits of R&D can spillover countries through trade, in particular, trade in ITT equipment.     

Multinational enterprises and technological spillovers: An evolutionary model

This paper analyses the determinants of the impact of foreign multinational enterprises on the technological development of domestic firms. It argues that the consequences of the foreign presence change according to market and technological conditions. An evolutionary model of technological competition between foreign and domestic firms is developed which is able to generate both vicious and virtuous circles of development in locations affected by foreign MNE activities. Theoretical analysis is tested against the empirical evidence for the UK economy (1983–1989).