L ECTURE 7 Innovation March 11, 2015 I. O VERVIEW Central Issues - - PowerPoint PPT Presentation

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L ECTURE 7 Innovation March 11, 2015 I. O VERVIEW Central Issues - - PowerPoint PPT Presentation

Jan 18, 2024 280 likes •958 views

Economics 210A Christina Romer Spring 2015

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LECTURE 7 Innovation

March 11, 2015

Economics 210A Christina Romer Spring 2015 David Romer

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  • I. OVERVIEW
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Central Issues

  • What determines technological progress?
  • Or, more concretely, what determines the pace of

inventive activity?

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Determinants of Inventive Activity

  • Demand-side factors:
  • Greater growth and booms may raise the

returns to inventive activity.

  • Supply-side factors:
  • More secure property rights could raise the

incentives for inventive activity.

  • Learning-by-doing.
  • Education, religion, class structure.
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Today’s Papers

  • Differ in countries and periods covered.
  • What unites them is creativity in data collection.
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  • II. KENNETH L. SOKOLOFF

“INVENTIVE ACTIVITY IN EARLY INDUSTRIAL AMERICA: EVIDENCE FROM PATENT RECORDS, 1790-1846”

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Sokoloff’s Data

  • Patent records.
  • Sample of 4,500 patents for 1790-1846.
  • What is good about them?
  • What are potential problems?
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From: Sokoloff, “Inventive Activity in Early Industrial America”

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First Issue: Procyclicality of Patenting Activity

  • Looking for a time-series relationship between

patenting activity and output.

  • Wants to argue in favor of a demand-side story for

inventive activity.

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From: Sokoloff, “Inventive Activity in Early Industrial America”

Business Cycle Conditions: Embargo Contraction Expansion Contraction

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From: Sokoloff, “Inventive Activity in Early Industrial America”

(Continued)

Business Cycle Conditions: Embargo Contraction Expansion Contraction

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Industrial Production and Patenting Rates

2 4 6 8 10 12 14 16 18 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 1790 1794 1798 1802 1806 1810 1814 1818 1822 1826 1830 1834 1838 1842 1846

Patenting Rates Industrial Production (Logs)

Source: Davis, “An Annual Index of U.S. Industrial Production, 1790-1915,” QJE, 2004.

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From: Sokoloff, “Inventive Activity in Early Industrial America”

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From: Sokoloff, “Inventive Activity in Early Industrial America”

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Second Issue: Relationship between Patenting Activity and Waterways

  • Looking at the cross-sectional variation in patenting

activity.

  • A relationship with waterways could suggest a role

for the growth of markets.

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From: Sokoloff, “Inventive Activity in Early Industrial America”

1805-1811 1830-1836

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From: Sokoloff, “Inventive Activity in Early Industrial America”

1805-1811 1830-1836

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From: Sokoloff, “Inventive Activity in Early Industrial America”

1805-1811 1830-1836

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From: Sokoloff, “Inventive Activity in Early Industrial America”

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Interpretation of the Cross-Section Evidence

  • Sokoloff emphasizes growth of markets leading to

higher returns to inventive activity.

  • Alternative supply-side stories?
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Evaluation of Sokoloff?

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  • III. PETRA MOSER

“HOW DO PATENT LAWS INFLUENCE INNOVATION? EVIDENCE FROM NINETEENTH-CENTURY WORLD’S FAIRS”

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Issue Moser Investigates

  • Do patent laws change the composition of

innovation?

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Crystal Palace Exhibition of 1851

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Crystal Palace Exhibition of 1851

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Centennial Exhibition of 1876

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Centennial Exhibition of 1876

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Exhibition Data

  • From two World’s Fairs: 1851, 1876
  • Source: Exhibition catalogs
  • What information is provided on each invention?
  • Strengths of the data, particularly relative to patent

records?

  • Potential weaknesses?
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From: Moser, “How Do Patent Laws Influence Innovation?”

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First Issue: How Much Was Patenting Used in Various Industries?

  • This is a way of identifying how patent laws (or lack
  • f them) may skew the direction of invention.
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From: Moser, “How Do Patent Laws Influence Innovation?”

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Second Issue: What Is the Relationship between Patent Laws and Composition of Exhibitions?

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From: Moser, “How Do Patent Laws Influence Innovation?”

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  • The mean of the distribution is equal to the number of degrees of

freedom.

  • The variance is equal to two times the number of degrees of freedom.

From: Moser, “How Do Patent Laws Influence Innovation?”

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From: Moser, “How Do Patent Laws Influence Innovation?”

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Multinomial Logit Estimation

  • Unit of observation is now individual exhibits (have

about 14,000).

  • Think of an inventor choosing to innovate in one of 7

industries.

  • Key RHS variable is a dummy equal to 1 if the country

the inventor is from doesn’t have a patent law.

  • Other controls as well.
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From: Moser, “How Do Patent Laws Influence Innovation?”

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From: Moser, “How Do Patent Laws Influence Innovation?”

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From: Moser, “How Do Patent Laws Influence Innovation?”

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Causation

  • Moser wants to interpret evidence as showing that

lack of patenting skews investment toward instruments and processed foods.

  • But, are there other explanations?
  • Small sample; perhaps there were idiosyncratic

factors.

  • Perhaps there is path dependence. Switzerland

started making watches for a random reason and then continued to innovate in that area.

  • Perhaps there is reverse causation.
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The Netherlands as a Natural Experiment

  • Abolished their patent laws between the two fairs.
  • Moser says for relatively exogenous reasons.
  • What happens to composition of innovation?
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From: Moser, “How Do Patent Laws Influence Innovation?”

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Evaluation of Moser?

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  • IV. PETER THOMPSON

“HOW MUCH DID THE LIBERTY SHIPBUILDERS LEARN? NEW EVIDENCE FOR AN OLD CASE STUDY”

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Learning-by-Doing

  • Innovation as a side-effect of production.
  • Production makes it easier to innovate – like an
  • utward shift in the “supply curve” of innovation.
  • May have implications involving externalities,

amplification mechanisms, and endogenous growth.

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Liberty Ships as a Case Study

  • Liberty ships were viewed as a relatively

homogenous commodity produced in large quantity with few changes in production processes (other than ones resulting from learning-by-doing).

  • Previous evidence from Liberty ships was important

in shaping views about learning-by-doing.

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An Economics 210A Field Trip?

From: tripadvisor.com

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From: Thompson, “How Much Did the Liberty Shipbuilders Learn?”

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Previous Estimates

ln 𝑧𝑗𝑗 = 𝐵 + λ𝑢 + 𝛽 ln 𝑋

𝑗𝑗 + 𝛾 ln 𝑀𝑗𝑗 + 𝛿 ln 𝑍 𝑗𝑗 + 𝜁𝑗𝑗,

where:

  • i indexes shipyards and t indexes time;
  • y is output;
  • W is “ways” (loosely speaking, construction berths);
  • L is person-hours;
  • Yit is cumulative output at yard i before period t.

Argote, Beckman, and Epple (1990) find 𝛿 = 0.44.

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Thompson’s Concerns

  • Increases in capital over time.
  • Reductions in quality over time.
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Suggestive Evidence of the Importance of Capital

  • About two-thirds of the overall investment done

after shipbuilding had started.

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From: Thompson, “How Much Did the Liberty Shipbuilders Learn?”

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Suggestive Evidence of the Importance of Capital

  • About two-thirds of the overall investment done

after shipbuilding had started.

  • Anecdotal evidence of the importance of capital.
  • There were large differences in capital across

shipyards, and yards with more capital were more productive.

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From: Thompson, “How Much Did the Liberty Shipbuilders Learn?”

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From: Thompson, “How Much Did the Liberty Shipbuilders Learn?”

Another Economics 210A Field Trip?

From: wikipedia.org

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Thompson’s Estimation

ln 𝑧𝑗𝑗 = 𝐵𝑗 + 𝛽 ln 𝐿𝑗𝑗 + 𝛾 ln 𝑀𝑗𝑗 + 𝛿 ln 𝐹𝑗𝑗 + 𝜁𝑗𝑗, where:

  • K is capital;
  • E is experience;
  • The rest of the notation is the same as before.
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Some Measurement Issues

  • From authorized capital spending to the capital

stock.

  • For K, Thompson uses either the estimated capital

stock or the estimated capital stock times estimated capital utilization.

  • For E, Thompson uses either cumulative output

before period t or cumulative labor-hours before period t.

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Is OLS OK?

  • Perhaps this is a (rare!) case where it’s reasonable.
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From: Thompson, “How Much Did the Liberty Shipbuilders Learn?”

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From: Thompson, “How Much Did the Liberty Shipbuilders Learn?”

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An Alternative to Regressions to Find the Role of Increases in K/L: “Liberty Ship Growth Accounting” – Initial Steps

  • Assume that by late in the war, MPK/𝑠 = 𝑁𝑁𝑀/𝑥

(where r is the user cost of capital).

  • Assume Cobb-Douglas production,

𝑍

𝑗𝑗 = 𝐵𝑗𝑗𝐿𝑗𝑗 𝛽𝑀𝑗𝑗 1−𝛽.

  • Algebra yields:

𝛽 1− 𝛽 = 𝑠𝑗𝑗𝐿𝑗𝑗 𝑥𝑗𝑗𝑀𝑗𝑗 .

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“Liberty Ship Growth Accounting” – Implementation

  • Find r , K, w, and L late in the war.
  • Infer α.
  • Calculate the implied series for ln 𝐵𝑗𝑗.
  • Use this as the dependent variable in regressions (in

the extreme, with only a constant and a measure of experience on the right-hand side).

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“Liberty Ship Growth Accounting” – Advantages and Disadvantages Relative to Finding Capital’s Contribution by OLS?

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From: Thompson, “How Much Did the Liberty Shipbuilders Learn?”

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From: Thompson, “How Much Did the Liberty Shipbuilders Learn?”

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Importance of Quality Adjustment

“Even with these upper limits, the effects of quality adjustment on the productivity numbers are modest. …The unadjusted productivity increase is 122 percent and the adjusted productivity increase is no less than 113 percent; thus the raw data contain a measurement error equivalent to no more than 6 percent of measured productivity growth.”

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Conclusion

  • Thompson’s view: “it does seem reasonable to draw
  • ne conclusion from the Liberty ship program that is

likely to resonate elsewhere: in a case study that is widely viewed as one of the cleanest examples of learning by doing on record, the real causes of productivity growth have turned out to be more complex and more diverse than economists have long believed to be the case.”

  • Do you agree?