4.3 The Heterogeneous Impact of Market Size on Innovation: Evidence from French Firm
48 Questions
0 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

Why does the presence of multinational groups complicate the analysis of export shocks and patenting?

  • Multinational groups may locate R&D in different countries than production, breaking the link between export shocks and patents. (correct)
  • Multinational groups all have the same proportion of exporters and innovators which gives skewed results
  • Multinational groups are not included in the dataset, which provides an inaccurate baseline.
  • Multinational groups always locate their R&D activities in the same country as production, skewing the results.

    • What is a key limitation of the dataset when analyzing the relationship between export shocks and patenting?

  • It does not adequately consider multinational groups and their dispersed R&D activities. (correct)
  • It doesn't include information on firm size.
  • It does not account for firms with no exports.
  • It does not include data about the different sectors in the market.

    • What is the effect of the measurement issue related to multinational groups on the study’s findings?

  • It leads to an underestimation of the positive response of patenting to export shocks. (correct)
  • It only affects calculations for large firms, not the whole market.
  • It has no effect on the results as it affects all firms equally.
  • It likely overestimates the positive response of patenting to export shocks.

    • What percentage of firms in the manufacturing sector have at least one patent in any given year on average?

    <p>2.7%</p> Signup and view all the answers

    What percentage of firms have at least one patent in their history over the sample years?

    <p>9.7%</p> Signup and view all the answers

    Which of the following sectors does not account for a large percentage of all priority patents?

    <p>Textiles and Apparel</p> Signup and view all the answers

    What share of manufacturing sector employment do the innovators represent?

    <p>37%</p> Signup and view all the answers

    In the sample, which of these values is highest for the innovators?

    <p>Exports</p> Signup and view all the answers

    In the regression equation (4), what does the term ∆Yf,t represent?

    <p>The change in labor productivity.</p> Signup and view all the answers

    What is the purpose of including af,t0 in the control vectors Zf,t0 and Z̃f,t0?

    <p>To account for the firm's initial productivity level, and its effect on trade shocks.</p> Signup and view all the answers

    What transformation is applied to ∆Pf,t for the OLS regression model?

    <p>It is transformed to <code>log(1 + ∆Pf,t)</code>.</p> Signup and view all the answers

    In the negative binomial specification (equation 5), what does EZ[∆Pf,t] represent?

    <p>The expected value of <code>∆Pf,t</code> conditional on <code>Zf,t</code>.</p> Signup and view all the answers

    How many years after the export shock do the figures show a significant response of patent activity for firms near the sector's frontier?

    <p>3 years</p> Signup and view all the answers

    What measure of new patent activity ∆Pf,t is used in the analyses?

    <p>Priority patents and accumulated citations.</p> Signup and view all the answers

    What is the primary method used to control for the relationship between firm characteristics and demand shocks?

    <p>A control function approach based on firm performance variables</p> Signup and view all the answers

    The analysis finds that the impact of export shocks on patenting is:

    <p>Strongest for firms near their sector's productivity frontier.</p> Signup and view all the answers

    Which variables are included as controls in the vector Zf,t0?

    <p>Both levels and growth rates of sales and employment, and past and current innovation rate</p> Signup and view all the answers

    What is the purpose of the robustness checks described in Appendix C?

    <p>To confirm that the main message from figures 6 and 7 remains unchanged.</p> Signup and view all the answers

    What type of correlation is less likely between firm characteristics and demand shocks?

    <p>Correlation with changes in the demand shock</p> Signup and view all the answers

    What observation did Borusyak et al.(2018) and Goldsmith-Pinkham et al.(2018) make regarding the bias induced by correlation between firm characteristics and future demand shocks?

    <p>The bias disappears as the number of shocks grows large.</p> Signup and view all the answers

    What outcome variables are used to measure the impact of the export demand shock?

    <p>Growth rates of sales and employment</p> Signup and view all the answers

    How is the average growth rate ∆Yf,t computed in the study?

    <p>(Yf,t − Yf,t−1 )/[0.5(Yf,t + Yf,t−1 )]</p> Signup and view all the answers

    What do the ατ coefficients for τ > 0 represent?

    <p>A response to a demand shock τ years earlier.</p> Signup and view all the answers

    How does the employment elasticity compare to the sales elasticity in response to a contemporaneous demand shock?

    <p>Employment elasticity is lower than sales elasticity.</p> Signup and view all the answers

    What is the time period used for the analysis of the firms' innovation response to export demand shocks?

    <p>2000-2008</p> Signup and view all the answers

    Why isn't the growth rate of a firm's full patent stock used to measure innovation?

    <p>It puts too much weight on patents that may not be currently relevant.</p> Signup and view all the answers

    Instead of dividing the change in patent stock by the average stock in the same periods, what is used to control for the rate of new patent introductions?

    <p>The average rate of new patent introductions during the pre-sample time interval 1985-1994.</p> Signup and view all the answers

    Given the large dispersion and the presence of zeros, which functional form is used for new patents in the OLS specification?

    <p>log(1 + ∆Pf,t )</p> Signup and view all the answers

    Why is a negative binomial specification chosen over a Poisson specification?

    <p>It is better suited for handling over-dispersion in the distribution.</p> Signup and view all the answers

    In the negative binomial specification equation (3), what is the expectation EZ taken conditional on?

    <p>Zf,t and past and future values of ∆Df,t.</p> Signup and view all the answers

    What is the mean and standard deviation of new patents (∆Pf,t), according to the text?

    <p>Mean 0.9, standard deviation 10.9</p> Signup and view all the answers

    What does the study use the export demand shock as an instrument for?

    <p>A firm's market size.</p> Signup and view all the answers

    Which sector has the highest mean number of patents per innovator?

    <p>Coke and refined petroleum products</p> Signup and view all the answers

    Which sector has the lowest mean number of priority patents per innovator?

    <p>Leather</p> Signup and view all the answers

    Which sector has the highest mean sales per firm?

    <p>Coke and refined petroleum products</p> Signup and view all the answers

    Which sector has the highest mean employment per firm?

    <p>Coke and refined petroleum products</p> Signup and view all the answers

    Which sector has the highest share of exporters?

    <p>Chemicals</p> Signup and view all the answers

    Which of the following sectors has a mean of 5.2 patents per innovator?

    <p>Rubber and plastic products</p> Signup and view all the answers

    How many sectors have a mean sales per firm greater than the 'All Manufacturing' average?

    <p>9</p> Signup and view all the answers

    Which sector has approximately half the number of firms as the 'Other manufacturing' sector?

    <p>Leather</p> Signup and view all the answers

    According to the model, what is the relationship between a firm's investment in innovation ($k$) and its production cost ($c$)?

    <p>An increase in $k$ decreases $c$ linearly, where the effect depends on the constant $\epsilon$.</p> Signup and view all the answers

    What does the term $c_I$ represent in the context of the firm's innovation cost?

    <p>It represents a constant linear cost parameter for each unit of innovation investment.</p> Signup and view all the answers

    What is the first-order condition (FOC) that a firm's optimal R&D investment, $k$, must satisfy?

    <p>$εQ(\tilde{c}, k; λ) = c_I^2 k + c_I$</p> Signup and view all the answers

    What is the interpretation of $Q(\tilde{c}, k; λ)$ in the first order condition (FOC)?

    <p>It represents the total output produced by firm after innovation $k$.</p> Signup and view all the answers

    What does the condition $\tilde{c}{min} - \epsilon k(\tilde{c}{min}; λ) = 0$ imply in the context of firm's cost?

    <p>It defines the minimum baseline cost of a firm, ensuring that even with innovation cost cannot be negative.</p> Signup and view all the answers

    In Figure 11, what is the 'intersection' between the marginal cost (MC) and marginal benefit (MB) crucial for an innovation choice?

    <p>It shows the optimal investment level of R&amp;D because at this point, the marginal gain equals marginal cost.</p> Signup and view all the answers

    What does the second-order condition (SOC) $c_I^2 > \epsilon \frac{\partial Q}{\partial k}$ ensure?

    <p>It ensures that the firm's innovation response to productivity differences is smooth.</p> Signup and view all the answers

    What is the economic interpretation of the condition $\frac{\partial Q}{\partial k}=\frac{\epsilon\lambda L}{2\beta}$?

    <p>It defines the rate at which quantity changes with respect to innovation $k$, and the magnitude depends on model parameters.</p> Signup and view all the answers

    Study Notes

    Heterogeneous Impact of Market Size on Innovation: Evidence from French Firm-Level Exports

    • Previous Versions: A prior version circulated as "The Impact of Export on Innovation: Theory and Evidence"
    • Authors: Philippe Aghion, Antonin Bergeaud, Matthieu Lequien, and Marc J. Melitz
    • Research Funding: Supported by the French National Research Agency (ANR) through the "Investissements d'Avenir" program and the European Research Council (ERC) under the European Union's Horizon 2020 program.
    • Summary of Findings: French firms respond to export demand shocks by innovating more, but this response is concentrated among more productive firms. Patent application response occurs 3-5 years after the demand shock, indicating the time lag to implement innovation. Increased demand leads to simultaneous increases in sales and employment for all firms, highlighting the divergence between innovation and output responses. This skewed innovation response arises from a model of endogenous innovation, firm heterogeneity, and competition. Increased market size drives firms to innovate but also induces competition, discouraging innovation by lower productivity firms.
    • Data Sources: French customs data, administrative fiscal datasets (FICUS and FARE), and the Spring 2016 PATSTAT patent dataset.
    • Innovation Measurement: Priority patent applications (first patent filings) due to the focus on newly invented products.
    • Demand Shock Construction: Utilizes exogenous export demand shocks based on aggregate conditions in export destinations, unaffected by firms' decisions.
    • Methodology: Explores the causal relationship between market size and innovation via firm-level export demand shocks as a tool.
    • Falsification Tests: Placebo demand shocks were constructed to validate the causal effect; firms' innovation was not significantly linked to artificial shocks.
    • Key Takeaways: Innovation and market size are connected, but the response varies significantly based on firm productivity. More productive firms show a greater response to expanding market size when compared with less productive firms within the same sector.

    Firm-Level Export Demand Shocks

    • Description: A firm-level measure of changes in export demand that is uncorrelated with the firm's internal decisions about innovation, accounting for a lag between export demand and innovation.
    • Measurement: Calculated using the change in exports to specific destinations and products for each firm.
    • Application: Serves as an exogenous instrument for measuring the impact of market size on innovation.

    Heterogeneous Impact: Distance to Frontier

    • Productivity as a Measure: Productivity, specifically value-added per worker, is employed to assess firm proximity to their sectors' technological frontier.
    • Findings: Firms closer to the frontier (higher initial productivity) exhibit a stronger response to export demand shocks. Firms with lower initial productivity have a weaker or muted response. This highlights the importance of firm heterogeneity in the relationship between market size and innovation.

    Falsification Tests

    • Placebo Demand Shocks: Utilize random product or destination allocation to create artificial demand shocks.
    • Validation: The analysis ensures that the observed relationship between innovation and the actual demand shocks is not due to pre-existing trends or other factors. This validation demonstrates that the observed results are largely attributable to market size effects.

    Model of Endogenous Innovation and Competition

    • Competition Effects: Increased market size, in addition to direct market-size effects, also induces a competition effect where new entrants enter the market, intensifying rivalry, and diminishing innovation incentives, particularly for less productive firms.
    • Endogenous Markups: The model incorporates endogenous markups, which are closely linked with Marshall's Second Law Of Demand, to reflect the dynamic effect of firms' pricing behaviors that are subject to changes in competition and market conditions.
    • Matching Empirical Findings: The model provides theoretical support for the heterogeneous innovation response to export demand shocks observed. The skewness in the response aligns with the predictions of the model, confirming the importance of the endogenous competitive effects.

    Studying That Suits You

    Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

    Quiz Team

    Related Documents

    Description

    This quiz explores the complexities involved in analyzing the impact of export shocks on patenting, particularly in the context of multinational groups. It examines key limitations of datasets, innovator employment shares, and critical regression terms that contribute to understanding these relationships. Test your knowledge on the underlying economic principles and statistical analyses presented.

    More Like This

    Use Quizgecko on...
    Browser
    Open
    Browser
    Browser