The Economics of Innovation and Technological Change Introduction Manuel Trajtenberg 2005

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The Economics of Innovation and Technological
ChangeIntroductionManuel Trajtenberg2005
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The Economics of Innovation TC as a field

• There is a core, and a great deal of interface
  with other, central fields in Economics
• With IO market structure innovation (main
  theme), incentives to innovate, innovation
  industry dynamics, innovation antitrust, demand
  for new products, etc.
• With Macro productivity growth, business
  cycles, institutions, etc.
• With Labor rising inequality skill-biased
  tech change, innovation unemployment
  (deskilling), etc.

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Interfaces with other fields cont.

• With International technology and comparative
  advantage, outsourcing, North-South,
  globalization international aspects of
  intellectual property (IP).
• With Law and Economics IP.
• With Finance how to finance RD, venture
  capital.
• With Health Economics new drugs, new medical
  devices and health care costs.
• With Economic History very central, Industrial
  revolutions, secular growth, etc.
• With Defense Economics Defense RD

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Lots of interest in the interface between
Technology and Economics

• Internet pervasiveness, brings about changes
  in lots of aspects of life, social, economic,
  personal e- commerce, eBay, the last bubble.
• New, exciting tech frontiers, e.g.
  Nanotechnology Tech
• and Health Care - biotechnology , the Genome
  project
• Feeling of acceleration of changes, but that
  was true also in the past
• But above all because recognition that
  innovation key to long-term growth, key to raise
  in standards of living.
• So, lets look at data on growth

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CNN JOINS WITH LEMELSON-MIT PROGRAM TO PRESENT
TOP 25 INNOVATIONS

• CNN enlisted the aid of the Lemelson-MIT Program
  in preparing the list of the Top 25 non-medical
  innovations that,
• have become widely used since 1980,
• are readily recognizable by most Americans,
• have had a direct and perceptible impact on
  everyday life, and
• could dramatically affect the future.

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Top 25 Innovations
13. Air bags 14. ATM 15. Advanced batteries
16. Hybrid car 17. OLEDs 18. Display panels
19. HDTV 20. Space shuttle 21. Nanotechnology
22. Flash memory 23. Voice mail 24. Modern
hearing aids 25. Short Range, High Frequency
Radio
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GNP Per Capita, 1999 Selected CountriesCompared
with the US 1870-1999
Switzerland
Canada
Japan
Sweden
UK
Israel
Czech
Argentina
Poland
China
Pakistan
Nigeria
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Growth Across Countries recent periods
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Periods during which output per capita
doubleddiffusion? acceleration?
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Global Population Trends
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Life expectancy at birthselected countries in
2000 compared with Japan, 1900-1999
France
Israel
United States
Sri Lanka
China
Thailand
Brazil
India
Bangladesh
Senegal
Burkina Paso
Uganda
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From Technology ReviewMIT Magazine of Innovation
Technology and Happiness by James
Surowiecki Does Economic Growth Improve the
Human Lot? Some empirical evidence, by Richard
Easterlin In Nations and Households in Economic
Growth Essays in Honor of Moses Abramovitz,
edited by Paul David and Melvin Reder, Academic
Press, 1974
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Technology and happiness
People adapt very quickly to good news (like
lottery winners) hedonic adaptation. So with
technology, no matter how dramatic a new
innovation is, it is very easy to take it for
granted. Things that once seemed miraculous soon
become mundane, and even frustrating when they
dont work properly. Bad externalities
congestion, invasion of privacy, cant get away
from it all, too much choice (but Internet helps)
On the other hand much better health care.
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Reminder sources of growth
gi Growth rate of variable i ? Rate of
productivity growth -the residual
growth of income (product) per capita (gY gL
) ? ? (gC gL)
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Sources of growth - continued
(gY gL ) ? ? (gC gL)
Two sources (1) Factor accumulation
(traditional) Increase in capital per worker
(gC gL) more machines, equipment, structures
per worker (2) Increases in productivity, ?
technological advance/innovation, fueled by RD
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Technological Change and Growth

• Findings of landmark research by Robert Solow
  increases in productivity (due to tech change)
  main determinant of growth! (one of the key
  empirical findings ever in economics)
• (confirmed commonly held perceptions
  bewilderment from technology, international
  exhibitions, Edison and Ford, etc.)
• Fundamental question innovation key to growth,
  but can the market economy deliver?

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Solows discovery and its aftermath

• The large residual manna from heave? a
  measure of our ignorance? Embarrassing for
  economists the most important determinant of
  economic well-being out of reach?!
• This finding largely determined the research
  agenda
• Measurement issues quality of products, of
  capital, human capital, economies of scale.
• Understand the mechanisms incentives,
  diffusion, GPTs, case studies, etc.
• The new growth literature endogenous growth.

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The Economics of Innovation
Institutional Structure
(Government, Universities, Military)
Legal Structure
Markets Structure
(Property rights protection, Patents)
(competition, other incentives)
RD          
Basic Science
Scientific publications, patents, citations, etc.
Spillovers
Innovation Technological Change
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The Economics of Innovation cont.
Innovation Technological Change
Economic effects
Other effects

• Health, Life expectancy
• Uncertainty Risk reduction
• Military balance
• Rise and fall of world
• powers
• Cultural influences

Micro
Macro

• Entirely new products
• Qualitative improvements
• in existing products
• Better production processes
• Industry dynamics entry exit

• Productivity
• Growth
• Standard of living
• Inequality
• Unemployment

and feedback mechanisms
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The Historical Stage 10,000 years of crawling
pace, then the tide of modern growth

• The 3 big enablers of the 1770s
• 1769 Watts steam engine (patent on separate
  condenser, etc.)
• 1776 The American Revolution emergence of
  political regime that would support the advent
  of the market economy built-in mechanisms to
  accommodate foster change (based on England,
  lead of 150 years)
• 1776 Adam Smith The Wealth of Nations the
  intellectual basis of the market economy.

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The Globalization of ST basic facts

• Advanced ST spreading around the world, also in
  developing countries (e.g. India, ppp 2,900,
  China, 5,000 versus US 37,800).
• Increased mobility of scientists and inventors
  (geographic, institutional)
• Larger, more diverse teams of inventors and
  scientists
• More international cooperation
• Decentralization of big science e.g. the
  Genome project.

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Why globalization of ST?

• Some of the reasons
• Globalization in trade, finance, IP, WTO, etc.
  bound to impact also ST.
• Increased complexity, cross-disciplinary
  nature of frontier ST (e.g. Genome, nano),
  increased specialization of researchers.
• Advances in ICT, ease of communication and
  transportation, lowering of barriers.

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But also persistent agglomeration effects

• Geographic localization of research and
  innovation, by fields
• Silicon Valley (around Stanford)
• Boston area (around MIT, Harvard)
• Cambridge UK (e.g. biotech)
• Israel Waddi
• Contradicts globalization? not quite creativity/
  innovation requires close interaction, highly
  specialized inputs, personal contacts, etc.

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Present facts about mobilityof ST players
Inventors, Scientists, Students
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International Mobility of Patent Inventorsnumber
of cross-country moves per year 1975-1999
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Flows of Inventors across countries
From
To
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Net international flows of inventors
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Flows of inventors across US states
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Net flows of inventors across states,
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AgglomerationSilicon Valley inventors

• 44,805 inventors related to Silicon Valley,
  involved in 160,000 patents.
• 3.6 patents per inventor (US mean of 2.7)
• corporate movers 45 (all inventors 33)
• state movers 16 (US inventors 7)
• country movers 3.7 (all inventors 1.9)
• (all percentages out of inventors with gt 1 patent)

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Further facts about globalization of ST

• Larger teams of researchers per unit of ST
  output (papers, patents, etc.)
• More international and institutional
  cooperation and diversity
• More geographic dispersion of researchers
• Large fraction of foreign PhD students

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Mean Number of Authors per Scientific Paper
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Size of RD TeamsAverage Number of Inventors
per Patent
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Institutional collaborationsMean number of
universities per scientific paper 1981-1999
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of US scientific papers joint with foreign
co-authors
w/foreign universities
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International Diversity of Teams of Patent
Inventors (1 Herfindahl index on countries of
inventors)
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Geographic diversity of inventors in the US(1
Herfindahl index on states of inventors)
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International mobility of Ph.D. StudentsForeign
Students as of total PhD enrollment 2000
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SE doctoral degrees earned by foreign students
2001 (NSF)
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International flows of inventors turnover
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Flows of inventors across states, and turnover