Is InnovationTechnology an Engine of Growth

1
Is Innovation/Technology an Engine of Growth?

• Motoo Kusakabe

2
Solow Growth Model

• Technological Progress (TFP) explains 90 of
  Economic Growth
• However, in the Solows 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

3
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 RD sector Approach

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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)

5
RD Model

• Romer(1990), Grossman, Helpman(1991), Aghion,
  Howitt(1991) proposed RD Model to explain the
  TFP growth
• They assumed a separate RD 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)

6
Implication of the RD 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

7
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

8
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 RD resources or social contact

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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

10
Technology diffusion

• On average 90 of a countrys technology is
  foreign technology
• Technology diffusion is very important for
  economic growth

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Channels of Technology Diffusion

• Formal Market Channel
• Royalty Payment
• Technology Spillover
• Imports (Eaton Kortum 2002)
• Import weighted Foreign RD (Coe Helpman 1995)
• Exports (Claridge, Lach, Tybout 1998)
• FDI no evidence for FDI spillover, but
  interesting case studies Intels FDI in Costa
  Rica
• Human Migration (India, Taiwan, China,
  Armenia,etc)

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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

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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)

14
Are Lower Income Countries capable of absorbing
foreign technologies?

• RD/GDP
• India 0.8, China 0.7, Moldova, 0.8, Uganda
  0.8, Tunisia 0.5
• Patent Applications by Residents/GDP

15
Patent Application by Residents/GDP
16
Regional Industrial Clusters

• Technical Diffusion is local gt Merit of
  Agglomeration
• Skilled Labor is scares gt Merit of concentrate
  to a specific region

17
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

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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,
  risk-taking
• Voluntary sector, community to support social
  networking