Willem Thorbecke, 15 October 2021

During the COVID-19 pandemic many countries experienced difficulty obtaining the semiconductors that are vital for smartphones, computers, cars, artificial intelligence, cybersecurity, and many other applications. This column looks at how Asia gained comparative advantage in this sector and identifies lessons for countries seeking to promote domestic semiconductor manufacturing.

Josh Lerner, Amit Seru, 14 September 2021

Financial innovation is intensely controversial, yet we know little about where or by whom these new products and services are developed. This column looks at over 24,000 financial US patents applied for between 2000 and 2018 to analyse the nature of financial patents. A surge in financial patenting was driven by IT firms and firms in industries outside of finance. Financial regulatory actions seem to have adversely affected innovation by financial firms, while regions with the highest technological opportunities attracted financial innovation by IT and non-financial firms.

Xuelin Li, Andrew Lo, Richard Thakor, 11 August 2021

Innovation is a key driver of economic growth, and incentivising research and development is therefore a vital policy goal. This column explores the role of competition policy in stimulating innovation by pharmaceutical firms. Specifically, the authors assess the effect that ‘pay-for-delay’ agreements have on firm-level research and development in the US. The results suggest that restricting the ability of firms to engage in pay-for-delay agreements appears to increase their incentives to innovate in the face of competition, although the aggregate effects are not clear-cut.

Marc Melitz, Stephen Redding, 28 July 2021

International trade is a key determinant of firm profitability and survival, so it is natural to expect it to influence both incentives to innovate and the rate of creative destruction. This column highlights four key mechanisms through which international trade affects endogenous innovation and growth: market size, competition, comparative advantage, and knowledge spillovers. Each of these mechanisms offers potential static and dynamic welfare gains. Discriminating between alternative mechanisms for these dynamic welfare gains and strengthening the evidence on their quantitative magnitude remain exciting areas of ongoing research.

Sebastian Siegloch, Nils Wehrhöfer, Tobias Etzel, 04 June 2021

Increasing regional inequality has become a major concern for policymakers both in the US and Europe. This column investigates the effects of a large place-based investment subsidy targeted at manufacturing firms in East Germany. It shows that a decrease in the subsidy rate leads to a decrease in manufacturing employment, highlighting spillovers to untreated sectors in treated counties and untreated counties connected via trade and local taxes. It also finds that the place-based policy is at least as efficient as cash transfers for the unemployed but is more effective in curbing regional inequality overall.

Jessica Bai, Shai Bernstein, Abhishek Dev, Josh Lerner, 14 May 2021

Government funding to boost innovation has seen an uplift since the unfolding of the COVID crisis. Using extensive global data, this column examines how government funding programmes focused on early-stage companies interact with private capital markets, and finds a positive relationship between government funding at this business stage and private capital allocation. Increased reliance on private capital markets enabled governments to mitigate investment frictions, improve capital allocation, and thereby increase local innovation.

Sabrina Howell, Jason Rathje, John Van Reenen, Jun Wong, 08 May 2021

In recent decades, US defence R&D seems to have lost its lustre. To combat the declining innovation, in 2018 the US Air Force reformed its contracting procedures to allow applicants more freedom to suggest projects with potential military benefits. This column uses data on applications and winners from such competitions to assess the effects of the reform. It finds that the ‘open’ programme attracts new and younger firms, increases future venture capital investment, and increases patenting. Government R&D could thus benefit from more bottom-up, decentralised approaches to promote innovation in the public sector. 

Alexander Cuntz, Matthias Sahli, 28 April 2021

Appropriation artists incorporate borrowed images from different sources to produce new compositions. These artists not only risk infringing copyright, but also leave intermediaries such as auction houses at risk of litigation. This column considers changes to the secondary market for appropriation art in the aftermath of a 2013 decision by the US Court of Appeals. Providing quantitative evidence of how the ‘fair use’ defence has affected the secondary arts market, the column questions whether the existing framework promotes or hampers innovation in the art world.

Matthias Breuer, Christian Leuz, Steven Vanhaverbeke, 08 April 2021

Firms often argue that disclosure and reporting regulations such as the EU Accounting Directive require them to reveal proprietary information, which discourages innovation. This column explores the effects of disclosure requirements on corporate innovation in the EU, and finds that forcing firms to publicly disclose their financial statements does indeed discourage innovative activities. At the industry level, positive information spillovers to competitors, suppliers, and customers appear insufficient to compensate for the negative direct effect on innovation. Indeed, the spillovers seem to concentrate innovation within a few large firms in a given industry.

Robin Döttling, Lev Ratnovski, 19 March 2021

Technological progress increases the importance of corporate intangible assets such as research and development knowledge, organisational structure, and brand equity. Using US data covering 1990 to 2017, this column shows that the stock prices and investment of firms with more intangible assets respond less to monetary policy shocks. Similarly, intangible investment responds less to monetary policy compared to tangible investment. The key channel explaining these effects is a weaker credit channel of monetary policy, as firms with intangible assets use less debt.

Lauren Cohen, Umit Gurun, Danielle Li, 14 March 2021

Covid-19 has revealed the importance of quick, efficient, but safe medical innovation. The development of various vaccines, as well as a range of treatments, have been tech tools in the fight against the public health and economic crises. This column explores the impact of informal deadlines within the drugs market, arguing that such regulatory pressures can end up distorting product safety and marketability. The findings highlight the need for well-designed regulatory systems which allow medical innovators to move swiftly but safely during the next health shock.

Mike Andrews, Alexander Whalley, 20 February 2021

We have witnessed significant changes in economic geography over the last years. However, little is known about the spatial concentration of innovation over time. This column uses a novel dataset containing the location of all US patents between 1836 to 2016 to analyse the geography of innovation over time. It finds that while concentration was as high as it is today in the late 1860s, it has seen a substantial decline thereafter, remaining at significantly lower levels for the larger part of the 20th century. It further finds substantial turnover in the identities of top inventing places.

Markus Nagler, Monika Schnitzer, Martin Watzinger, 08 February 2021

The secular decline in productivity growth is blamed by some on the slow diffusion of new general purpose technologies, so it is important to understand what slows down this diffusion and how it can be speeded up. This column presents evidence from the diffusion of the transistor, one of the most important general purpose technologies of our time. It shows that patents on general purpose technologies are likely to cause considerably more harm than patents on other technologies unless a standardised licensing regime is put in place. Not only do they block more follow-on innovation, but in particular they block valuable follow-on innovation arising from cross-technology spillovers. 

Philippe Aghion, Antonin Bergeaud, John Van Reenen, 01 February 2021

While there is suggestive evidence that regulations may have a stifling effect on innovation, there is as yet no rigorous economic framework to quantify the magnitude of such regulatory effects on innovation and the aggregate economy. This column proposes such a framework tests its implications on data from France. As the framework predicts, regulations do indeed hamper innovation, but the negative effects concern only incremental innovations and are absent for radical innovations.  Overall, regulations are estimated to reduce aggregate innovations by 5%. 

Pierre Dubois, Yassine Lefouili, Stephane Straub, 30 January 2021

Patients in the developing world often face prices for essential medicines far in excess of international reference levels, even if those drugs have lost patent protection. This column presents evidence from seven low- and middle-income countries with diverse drug procurement systems to assess the effect of centralised procurement on drug prices. The results of the study highlight that centralised procurement of drugs by the public sector leads to lower prices, but that the induced price reduction is smaller when the supply side is more concentrated.

Florin Maican, Matilda Orth, Mark Roberts, Van Anh Vuong, 26 January 2021

Firms’ incentives to undertake innovation investments can be affected by their activities in domestic and international markets. This column uses a structural framework to estimate the returns to innovation investments and analyse the impact of trade on those returns. It shows that a firm’s R&D investments raise its future productivity in both domestic and export markets, with a larger impact in the export market. Furthermore, it shows that public efforts to stimulate innovation investments can be offset by trade restrictions limiting access to world markets. These findings are important for policymakers to recognise when fostering innovation. 

Debora Revoltella, Pedro J. F. de Lima, 21 December 2020

The Covid-19 pandemic poses severe risks for Europe’s economy, but it also presents opportunities. The sharp short-term shock will be followed by large structural changes to the global economy in the long term. This column sheds light on the challenges ahead using data from the European Investment Bank Investment Survey. Large sectors of Europe’s economy, particularly SMEs, need to innovate and adopt digital technologies to avoid falling behind. Policy support needs to evolve from liquidity provision to a more targeted push for structural transformation. 

Molly Lesher, 13 October 2020

Many new innovations do not fit neatly into the traditional definitions of markets as recognised by existing regulatory bodies. One way policymakers can define new regulatory frontiers for such technologies is to implement ‘sandboxes’ – frameworks that provide participant companies with some regulatory flexibility while insulating the impact on consumers. This column argues that while sandboxes can bring benefits, they are not always the best approach and policy experimentation can – and should – take many forms.

Ufuk Akcigit, Jeremy Pearce, Marta Prato, 10 October 2020

For economies to innovate and grow past the COVID-19 crisis, policymakers have to understand the implications of various policies for innovation and economic growth, and take into account how people sort into professions and how potential scientists and innovators respond to policy. This column presents a comprehensive framework to study theoretically and empirically the role of education and R&D policies for boosting innovation and economic growth. It finds that policy tools in both education and R&D are complementary in developing talent, which is the key ingredient to innovation. The best mix of policies depends on how unequal society is and how urgently innovation is needed.

Ufuk Akcigit, Sina T. Ates, Josh Lerner, Richard Townsend, Yulia Zhestkova, 24 September 2020

The US military community has highlighted the potential security threat posed by foreign venture investments in Silicon Valley, particularly from Chinese stakeholders. This column presents a theoretical and empirical analysis of the relationship between venture capital and national security, focusing on the ability of overseas firms to gain a domestic technological advantage through investing in the US tech sector. The growing importance of this the technology sector, as well as the national security issues at stake, mean that understanding the correlations is a vital avenue of future research.

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