Diego Comin, 04 April 2018

Europe currently faces multiple challenges on economic, demographic, and environmental fronts. All of these can be addressed by innovations in technology and process. This video discusses some of the outcomes of the EU-FRAME mid-term conference, outlining ways in which innovation policy can be designed so as to best serve welfare and productivity across all actors. This conference took place in March 2018 at ZEW, Mannheim.

CEPR is a partner of the FRAME Project, which is coordinated by ZEW. The CEPR team is led by Diego Comin, a Research Fellow in its Macroeconomics and Growth Programme. The FRAME project has received funding from the European Union's Horizon 2020 Research and Innovation Programme under the grant agreement No #727073.

Jonathan Haskel, Stian Westlake, 31 May 2018

Many economists have suggested that slowing technical innovation is behind the secular stagnation and slowdown in total factor productivity growth that have plagued many advanced economies since the Global Crisis. This column, first published in January 2018, argues that the recent rise of the intangible economy could play an important role. An assessment of measurement trends and the properties of intangible investment across the globe suggests that total factor productivity growth will continue to be low until governments design the institutions an intangible economy needs, and until its commercial, legal, and ethical norms are worked out.

Margaret Kyle, David Ridley, Su Zhang, 14 December 2017

Governments use various tools to promote scientific research, and the resulting innovations or knowledge can cross borders. This column examines whether governments and organisations adjust their funding of medical research in response to the funding decisions of others. The results suggest an increase in US government funding is associated with a decrease in funding by others. While this evidence is consistent with free riding, qualitative evidence suggests it reflects the optimal reallocation of funds.

Xavi Cirera, Edwin A. Goñi Pacchioni, William Maloney, 29 November 2017

Innovation is widely seen as central to the growth of developing countries, and available evidence suggests that the returns to R&D investment should be extremely high.  Yet low-income countries invest very little. This column suggests that this is due to the increasing scarcity of a wide array of factors complementary to innovation, and that this explains the lack of convergence of low-income countries to the technological frontier.    

Erika Färnstrand Damsgaard, Per Hjertstrand, Pehr-Johan Norbäck, Lars Persson, Helder Vasconcelos, 23 November 2017

Most developed economies provide significant subsidies to small businesses to encourage innovation. This column argues that while subsidies to reduce entry costs may increase entrepreneurial entry, they can also lead to a reduction in the likelihood of ‘breakthrough’ inventions. Entry costs, which are incurred when an innovation project is successful, prompt small firms and entrepreneurs to pursue high-risk, high-reward innovations.

Saul Lach, Zvika Neeman, Mark Schankerman, 03 November 2017

Understanding how the design of policy to support R&D influences its effectiveness, and how loan programmes should be optimally designed to maximise welfare, is critical to formulating effective, cost-efficient policies. This column uses mechanism design to analyse the optimal structure of R&D loan programmes. The results suggest that optimal policies should ‘target the middle’, as low-risk projects will be funded by the market and high-risk projects are not likely to generate sufficient social payoff to justify support. Moreover, the optimal policy is likely to differ across technology areas, and between industrialised and emerging economies.

Monika Schnitzer, Martin Watzinger, 31 October 2017

Conventional wisdom holds that venture capital-financed start-up companies generate positive spillovers for other businesses, but these spillovers are hard to measure accurately. This column uses a broader analysis of patent spillovers than previous studies to argue that venture capital-financed start-up companies help established companies innovate, and play a significant role in the commercialisation of new technologies. This suggests that subsidies for venture capital investment should be at least as large as current R&D subsidies.

Daron Acemoğlu, Ufuk Akcigit, Douglas Hanley, William Kerr, 05 July 2017

Substantial headway has been made in the transition to clean technology, but recent political developments threaten this progress. This column examines the transition process using a microeconomic model of competition in production and innovation between clean and dirty technologies. The results suggest that production taxes can deal with dirty emission externalities, while research subsidies are sufficient to redirect innovation towards clean technologies. However, delaying intervention will drastically slow down the overall transition.

Kenta Ikeuchi, Kazuyuki Motohashi, Ryuichi Tamura, Naotoshi Tsukada, 28 June 2017

There is growing interest in measuring the scientific aspects of industrial innovation and performance to understand the economic impact of publicly funded R&D. This column presents new indicators for science-industry linkages in Japan based on a novel dataset combining academic research paper data, patent data, and economic census data. It finds that the academic sector is getting more involved in patenting activities, and that scientific knowledge generated in the sector is being utilised not only in science-based industries, but also in many others.

Ian Goldin, Chris Kutarna, 04 October 2016

Some economists see currently faltering GDP growth as part of a longer-term trend for advanced economies, reflecting their belief that the bulk of technological innovation is now behind humankind. This column argues that neither history nor the present-day pace of scientific discovery supports the notion of diminishing returns to technological innovation. The challenge for growth economists is that analytic models are poorly suited to capturing and setting society’s expectations for these impending disruptions.

Paul Hünermund, Georg Licht, 08 July 2016

European countries are increasingly coordinating their national research and development policies. However, supra-national R&D programmes entail problems from a governance standpoint. This column discusses the problem of cross-subsidisation between participating countries. European joint programming initiatives are usually designed to avoid international transfer payments. Empirical evidence suggests that doing so comes at the price of decreased efficiency. 

Bettina Peters, Markus Roberts, Van Vuong, 01 May 2016

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. 

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 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 Lo, Richard 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.

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