Transcript Is Innovation anEngine of Growth?

Is Innovation/Technology an
Engine of Growth?
Motoo Kusakabe
Solow’ Growth Model
• Technological Progress (TFP) explains 90% of
Economic Growth
• However, in the Solow’s Model, TFP is a
“Residual” and the Model does not explain
how TFP is determined
• Apart from exogenous technical change,
productivity growth would fall to zero
(diminishing returns of capital)
• The Model does not provide any policy advice
Endogenous Growth Models
• Endogenous Growth Models try to explain
how TFP (Technology change) is determined
• Two types of Endogenous Growth Models:
– Learning-by-Doing Approach
– Separate R&D sector Approach
Learning-By-Doing Approach
• Technology change is embodies in “using
machinery embodying new technology (Arrow
Vintage Model)
• Romer (1986), and Lucas (1988) thought the
technological progress was made through
investing in machinery and human capital
• They assume “increasing rate of return to
scale”
• No convergence, (“rich country remain rich”)
R&D Model
• Romer(1990), Grossman, Helpman(1991), Aghion,
Howitt(1991) proposed R&D Model to explain the
TFP growth
• They assumed a separate R&D sector to produce
“knowledge”
• “knowledge” has externality so it increases the
productivity of others’ knowledge production
• This externality will off-set the diminishing rate of
return (“technology spillover”)
Implication of the R&D Model
• If technology spillover is global, welfare of
countries will converge.
– If it is “local” diverging patterns multiply.
– Some countries “locked-in” in low productivity
Characteristics of Technology
• Technology/Knowledge is a “Public Good”
– Non-Rivalry: if technology is used by someone, it does
not prevent others to use the same technology
• Technology/Knowledge has a large “Externality”
– Inventor of the technology cannot monopolize all the
benefit of the technology: “Technology Spillover”
– Other firms can utilize the technology: “Standing on
the Shoulder”
Technology/Knowledge is not a
complete Public Good
• Patent system protect the inventors’ right to
appropriate the profit for certain period,
– But Patent cannot fully protect the inventors’ right
• Imitators cannot imitate the technology
without investing in R&D resources or social
contact
Why Knowledge cannot be copied
without effort?
• Only a broad outline of technology is
“Codified” (Polanyi 1958)
• Other parts “Tacit”
• Tacit knowledge can be transferred only by
“person-to-person instruction”
• “Face-to-face” interaction is most effective in
the transfer of tacit knowledge
Technology diffusion
• On average 90% of a country’s technology is
foreign technology
• Technology diffusion is very important for
economic growth
Channels of Technology Diffusion
• Formal Market Channel
– Royalty Payment
• Technology “Spillover”
–
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–
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Imports (Eaton Kortum 2002)
Import weighted Foreign R&D (Coe & Helpman 1995)
Exports (Claridge, Lach, Tybout 1998)
FDI: no evidence for FDI spillover, but interesting case
studies: Intel’s FDI in Costa Rica
– Human Migration (India, Taiwan, China, Armenia,etc)
Is Technology Diffusion global or local?
• “Within-Country” Diffusion is much larger
than “Between-Country” Diffusion (Eaton,
Kortum 1999)
• Keller (2002) found strong decay of diffusion
by the distance of the two countries. But
decay parameter diminishes substantially
from the 1970s to the 1990s
What kind of Human Capital do
contribute to Technical Diffusion?
• What is the determinant of successful
technical diffusion? (“Absorptive Capacity”)
– Human Capital (Nelson, Phelps1966),
– Researcher and Technicians, Tertiary education is
important for productivity growth (Kusakabe 2008
– R & D Expenditure (Cohen, Levinthal 1989),
(Redding, Reneen 2000), (Kusakabe 2008)
Are Lower Income Countries capable
of absorbing foreign technologies?
• R&D/GDP
– India 0.8%%, China 0.7%, Moldova, 0.8%, Uganda
0.8%, Tunisia 0.5%
• Patent Applications by Residents/GDP
Patent Application by Residents/GDP
Rank
Country
1
Moldova
2
Korea, Rep.
3
Mongolia
4
Japan
5
Armenia
Low
6
Kyrgyz Republic
Low
7
Uzbekistan
Low
8
Russian Federation
Lower Middle
9
Belarus
Lower Middle
10
Georgia
Low
11
Germany
12
Sweden
Low
Low
Regional Industrial Clusters
• Technical Diffusion is local => Merit of
Agglomeration
• Skilled Labor is scares => Merit of concentrate
to a specific region
Structure of a Cluster
• Consisting of many small & Medium
enterprises
• Leading company(ies) get order from foreign
countries
• division of labor: There is a independent firms
with different skills in charge of different
processing stages
• Examples: Italian Industrial Districts, Japanese
Keihin Cluster, Silicon Valley
Success Factor for creating a cluster
• Universities as a core of networks
• Concentration of skilled, or “creative” class
people
• Institution to support start-up firms+ Venture
capital funds, incubators, science parks
• Culture to encourage entrepreneurship, risktaking
• Voluntary sector, community to support social
networking