ACTIVITY Yuriy Gorodnichenko UC Berkeley W HAT DO WE KNOW ? Is - PowerPoint PPT Presentation

T HE ROLE OF INNOVATION AND SKILLS IN BOOSTING INVESTMENT ACTIVITY Yuriy Gorodnichenko UC Berkeley

W HAT DO WE KNOW ?  Is innovation a key factor for productivity growth?

W HAT DO WE KNOW ?  Is innovation a key factor for productivity growth? Yes!

W HAT DO WE KNOW ?  Is innovation a key factor for productivity growth? Yes!  Does modern innovation require skills (human capital)?

W HAT DO WE KNOW ?  Is innovation a key factor for productivity growth? Yes!  Does modern innovation require skills (human capital)? Yes! (most of the time)

W HAT DO WE KNOW ?  Is innovation a key factor for productivity growth? Yes!  Does modern innovation require skills (human capital)? Yes! (most of the time)  Should resources (capital/labor) flow to more innovative/productive firms?

W HAT DO WE KNOW ?  Is innovation a key factor for productivity growth? Yes!  Does modern innovation require skills (human capital)? Yes! (most of the time)  Should resources (capital/labor) flow to more innovative/productive firms? Yes!

W HAT DO WE KNOW ?  Is innovation a key factor for productivity growth? Yes!  Does modern innovation require skills (human capital)? Yes! (most of the time)  Should resources (capital/labor) flow to more innovative/productive firms? Yes!  When should the flow stop?

W HAT DO WE KNOW ?  Is innovation a key factor for productivity growth? Yes!  Does modern innovation require skills (human capital)? Yes! (most of the time)  Should resources (capital/labor) flow to more innovative/productive firms? Yes!  When should the flow stop? At the point where marginal products (“returns”) are equalized across firms

W HAT DO WE KNOW ?  Is innovation a key factor for productivity growth? Yes!  Does modern innovation require skills (human capital)? Yes! (most of the time)  Should resources (capital/labor) flow to more innovative/productive firms? Yes!  When should the flow stop? At the point where marginal products (“returns”) are equalized across firms  What happens if this recommendation is violated?

W HAT DO WE KNOW ?  Is innovation a key factor for productivity growth? Yes!  Does modern innovation require skills (human capital)? Yes! (most of the time)  Should resources (capital/labor) flow to more innovative/productive firms? Yes!  When should the flow stop? At the point where marginal products (“returns”) are equalized across firms  What happens if this recommendation is violated? Investment in human/physical capital falls Innovation declines

M ISALLOCATION TO I NNOVATION 60 SE NL IE UK Knowledge & Technology Output DE FI 50 Global Innovation Index LU CZ DK AT EE IT FR 40 ES MT SI BE BG HU LV SK PT RO HR 30 PL LT EL CY 20 .75 1.75 1.25 St. Deviation of Log Marginal Revenue Product of Capital (EIB Investment Survey)

I NNOVATION TO I NVESTMENT 60 SE NL IE UK Knowledge & Technology Output DE FI 50 Global Innovation Index LU CZ DK AT EE IT FR 40 ES MT SI BE BG LV HU SK PT RO HR 30 PL LT EL CY 20 .15 .2 .25 .3 .35 .4 Investment to GDP ratio (Penn World Table)

S COPE FOR IMPROVEMENT 2 St.Dev. of Log Marginal Revenue Product of Capital 1.5 1 .5 0 DEES IT FRUK PLHUCZ NL FI SE ATRO SI BEBGDKHRCYSK PT EE LV IE LT LU ELMT

E NDOWMENTS OR I NSTITUTIONS Standard Deviation of Log Firm Institutions Marginal Characteristics Revenue Product of Capital German German 1.04 Greek Greek 1.69

E NDOWMENTS OR I NSTITUTIONS Standard Deviation of Log Firm Institutions Marginal Characteristics Revenue Product of Capital German German 1.04 Greek Greek 1.69 German Greek 2.14

E NDOWMENTS OR I NSTITUTIONS Standard Deviation of Log Firm Institutions Marginal Characteristics Revenue Product of Capital German German 1.04 Greek Greek 1.69 German Greek 2.14 Greek German 1.04