Laura Alfaro, Alejandro Cuñat, Harald Fadinger, Yanping Liu, 02 October 2018

Real exchange rate devaluations are typically seen as a viable development strategy, but the effectiveness of the approach may vary over time and across countries. This column explores this issue by focusing on the microeconomics of firm-level responses to exchange rate fluctuations. Results show varying patterns of responses to fluctuations by region and by import/export orientation. These results highlight the crucial role of a firm’s integration in global value chains.

Andrés Rodríguez-Pose, Callum Wilkie, 01 October 2018

Economically disadvantaged regions are, arguably by definition, less innovative than advantaged regions. But not all economically disadvantaged areas are the same. This column compares the innovative capacity of economically less-developed areas in North America and Europe, and reveals that less-developed regions in Canada and the US are far more innovative than their European counterparts. Key factors affecting innovation processes include the ability to absorb skilled young labour into the workforce and the types of knowledge flows that are capitalised upon. 

Zhao Chen, Zhikuo Liu, Juan Carlos Suárez Serrato, Daniel Yi Xu, 28 August 2018

Tax incentives to encourage firms to invest in R&D may also encourage firms to fraudulently relabel other expenses as R&D. The column finds that 30% of the increase in reported R&D in response to a Chinese incentive programme was due to relabelling. The size and type of tax break has a large effect on both the level of participation and the incentive to relabel.

Lee Branstetter, Britta Glennon, J. Bradford Jensen, 21 August 2018

US firms have begun shifting R&D investment towards non-traditional destinations such as China, India, and Israel. The column argues that this is a response to a shortage in software and IT-related human capital within the US. When US multinationals are able to import talent or export R&D work, this reinforces US technological leadership. Conversely, politically engineered constraints on this response will undermine the competitiveness of US-based firms.

Ufuk Akcigit, Sina T. Ates, Giammario Impullitti, 02 July 2018

The optimal set of industrial policies to tackle increased competition from global technological rivals is once again the centre of a heated debate, with protectionist policies now gaining traction. Drawing on US experience three decades ago, this column examines the effects of import tariffs and R&D subsidies on domestic firms’ global competitiveness, aggregate growth, and welfare. It argues that import tariffs generate large dynamic productivity losses and may enhance welfare only for a short time horizon and when trading partners do not retaliate. By contrast, R&D subsidies stimulate domestic innovation and increase welfare, especially over longer time horizons, without jeopardising the gains from trade. 

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.

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