Podcast
Questions and Answers
Why does the presence of multinational groups complicate the analysis of export shocks and patenting?
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?
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?
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?
What percentage of firms in the manufacturing sector have at least one patent in any given year on average?
What percentage of firms have at least one patent in their history over the sample years?
What percentage of firms have at least one patent in their history over the sample years?
Which of the following sectors does not account for a large percentage of all priority patents?
Which of the following sectors does not account for a large percentage of all priority patents?
What share of manufacturing sector employment do the innovators represent?
What share of manufacturing sector employment do the innovators represent?
In the sample, which of these values is highest for the innovators?
In the sample, which of these values is highest for the innovators?
In the regression equation (4), what does the term ∆Yf,t
represent?
In the regression equation (4), what does the term ∆Yf,t
represent?
What is the purpose of including af,t0
in the control vectors Zf,t0
and Z̃f,t0
?
What is the purpose of including af,t0
in the control vectors Zf,t0
and Z̃f,t0
?
What transformation is applied to ∆Pf,t
for the OLS regression model?
What transformation is applied to ∆Pf,t
for the OLS regression model?
In the negative binomial specification (equation 5), what does EZ[∆Pf,t]
represent?
In the negative binomial specification (equation 5), what does EZ[∆Pf,t]
represent?
How many years after the export shock do the figures show a significant response of patent activity for firms near the sector's frontier?
How many years after the export shock do the figures show a significant response of patent activity for firms near the sector's frontier?
What measure of new patent activity ∆Pf,t
is used in the analyses?
What measure of new patent activity ∆Pf,t
is used in the analyses?
What is the primary method used to control for the relationship between firm characteristics and demand shocks?
What is the primary method used to control for the relationship between firm characteristics and demand shocks?
The analysis finds that the impact of export shocks on patenting is:
The analysis finds that the impact of export shocks on patenting is:
Which variables are included as controls in the vector Zf,t0?
Which variables are included as controls in the vector Zf,t0?
What is the purpose of the robustness checks described in Appendix C?
What is the purpose of the robustness checks described in Appendix C?
What type of correlation is less likely between firm characteristics and demand shocks?
What type of correlation is less likely between firm characteristics and demand shocks?
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?
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?
What outcome variables are used to measure the impact of the export demand shock?
What outcome variables are used to measure the impact of the export demand shock?
How is the average growth rate ∆Yf,t computed in the study?
How is the average growth rate ∆Yf,t computed in the study?
What do the ατ coefficients for τ > 0 represent?
What do the ατ coefficients for τ > 0 represent?
How does the employment elasticity compare to the sales elasticity in response to a contemporaneous demand shock?
How does the employment elasticity compare to the sales elasticity in response to a contemporaneous demand shock?
What is the time period used for the analysis of the firms' innovation response to export demand shocks?
What is the time period used for the analysis of the firms' innovation response to export demand shocks?
Why isn't the growth rate of a firm's full patent stock used to measure innovation?
Why isn't the growth rate of a firm's full patent stock used to measure innovation?
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?
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?
Given the large dispersion and the presence of zeros, which functional form is used for new patents in the OLS specification?
Given the large dispersion and the presence of zeros, which functional form is used for new patents in the OLS specification?
Why is a negative binomial specification chosen over a Poisson specification?
Why is a negative binomial specification chosen over a Poisson specification?
In the negative binomial specification equation (3), what is the expectation EZ taken conditional on?
In the negative binomial specification equation (3), what is the expectation EZ taken conditional on?
What is the mean and standard deviation of new patents (∆Pf,t), according to the text?
What is the mean and standard deviation of new patents (∆Pf,t), according to the text?
What does the study use the export demand shock as an instrument for?
What does the study use the export demand shock as an instrument for?
Which sector has the highest mean number of patents per innovator?
Which sector has the highest mean number of patents per innovator?
Which sector has the lowest mean number of priority patents per innovator?
Which sector has the lowest mean number of priority patents per innovator?
Which sector has the highest mean sales per firm?
Which sector has the highest mean sales per firm?
Which sector has the highest mean employment per firm?
Which sector has the highest mean employment per firm?
Which sector has the highest share of exporters?
Which sector has the highest share of exporters?
Which of the following sectors has a mean of 5.2 patents per innovator?
Which of the following sectors has a mean of 5.2 patents per innovator?
How many sectors have a mean sales per firm greater than the 'All Manufacturing' average?
How many sectors have a mean sales per firm greater than the 'All Manufacturing' average?
Which sector has approximately half the number of firms as the 'Other manufacturing' sector?
Which sector has approximately half the number of firms as the 'Other manufacturing' sector?
According to the model, what is the relationship between a firm's investment in innovation ($k$) and its production cost ($c$)?
According to the model, what is the relationship between a firm's investment in innovation ($k$) and its production cost ($c$)?
What does the term $c_I$ represent in the context of the firm's innovation cost?
What does the term $c_I$ represent in the context of the firm's innovation cost?
What is the first-order condition (FOC) that a firm's optimal R&D investment, $k$, must satisfy?
What is the first-order condition (FOC) that a firm's optimal R&D investment, $k$, must satisfy?
What is the interpretation of $Q(\tilde{c}, k; λ)$ in the first order condition (FOC)?
What is the interpretation of $Q(\tilde{c}, k; λ)$ in the first order condition (FOC)?
What does the condition $\tilde{c}{min} - \epsilon k(\tilde{c}{min}; λ) = 0$ imply in the context of firm's cost?
What does the condition $\tilde{c}{min} - \epsilon k(\tilde{c}{min}; λ) = 0$ imply in the context of firm's cost?
In Figure 11, what is the 'intersection' between the marginal cost (MC) and marginal benefit (MB) crucial for an innovation choice?
In Figure 11, what is the 'intersection' between the marginal cost (MC) and marginal benefit (MB) crucial for an innovation choice?
What does the second-order condition (SOC) $c_I^2 > \epsilon \frac{\partial Q}{\partial k}$ ensure?
What does the second-order condition (SOC) $c_I^2 > \epsilon \frac{\partial Q}{\partial k}$ ensure?
What is the economic interpretation of the condition $\frac{\partial Q}{\partial k}=\frac{\epsilon\lambda L}{2\beta}$?
What is the economic interpretation of the condition $\frac{\partial Q}{\partial k}=\frac{\epsilon\lambda L}{2\beta}$?
Flashcards
Multinational Groups & Export Shocks
Multinational Groups & Export Shocks
The issue arises when dealing with national firm-level data as multinational groups may have their R&D activities in locations different from their production facilities. This makes it challenging to establish a clear link between export shocks and patenting.
Broken Production/R&D Links
Broken Production/R&D Links
When a firm generates patents related to its R&D activities, but these activities happen in a different country than where the firm produces goods, it's difficult to directly connect the patents to export shocks experienced by the production site. This measurement challenge weakens the observed relationship between export shocks and innovation.
Sector Breakdown
Sector Breakdown
The distribution of firms across different industries, or sectors, and how these industries contribute to overall economic activity.
Average Employment and Sales per Firm (Sector Level)
Average Employment and Sales per Firm (Sector Level)
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Proportion of Exporters (Sector Level)
Proportion of Exporters (Sector Level)
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Proportion of Innovators (Sector Level)
Proportion of Innovators (Sector Level)
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Average Exports per Exporter (Sector Level)
Average Exports per Exporter (Sector Level)
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Average Patents and Priority Patents per Innovator (Sector Level)
Average Patents and Priority Patents per Innovator (Sector Level)
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Control Function Approach
Control Function Approach
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Demand Shock (∆Df,t)
Demand Shock (∆Df,t)
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Control Variables (Zf,t0)
Control Variables (Zf,t0)
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Market Size and Innovation
Market Size and Innovation
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Outcome Variable (∆Yf,t)
Outcome Variable (∆Yf,t)
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Coefficients (ατ)
Coefficients (ατ)
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Time Lag (Ï„)
Time Lag (Ï„)
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Emprical Findings
Emprical Findings
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Mean per Innovator
Mean per Innovator
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Share of Exporters
Share of Exporters
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Mean per Exporter
Mean per Exporter
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Innovators
Innovators
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Mean per Firm: Employment
Mean per Firm: Employment
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Mean per Firm: Sales
Mean per Firm: Sales
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NACE rev2 classification
NACE rev2 classification
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Priority Patent
Priority Patent
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Mean per Firm: Innovation Patents
Mean per Firm: Innovation Patents
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Innovation Patents
Innovation Patents
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Change in Patent Stock (∆Pf,t)
Change in Patent Stock (∆Pf,t)
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Average Rate of New Patent Introductions (∆Pf,0)
Average Rate of New Patent Introductions (∆Pf,0)
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Negative Binomial Specification
Negative Binomial Specification
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Over-Dispersion
Over-Dispersion
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Average Rate of New Patent Introductions (∆Pf,0)
Average Rate of New Patent Introductions (∆Pf,0)
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Negative Binomial Specification
Negative Binomial Specification
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Over-Dispersion
Over-Dispersion
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Negative Binomial Regression
Negative Binomial Regression
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Innovation Choice
Innovation Choice
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Baseline Cost (c̃)
Baseline Cost (c̃)
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Innovation Investment (k)
Innovation Investment (k)
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Cost Reduction (εk)
Cost Reduction (εk)
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Cost of Innovation
Cost of Innovation
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Total Profit (Î )
Total Profit (Î )
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Marginal Cost & Benefit of Innovation
Marginal Cost & Benefit of Innovation
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Second-Order Condition (SOC)
Second-Order Condition (SOC)
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Does productivity impact all firms equally?
Does productivity impact all firms equally?
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What is a negative binomial specification?
What is a negative binomial specification?
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What are "trade shocks"?
What are "trade shocks"?
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What is "af,t0" in the equation?
What is "af,t0" in the equation?
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Why is the control vector Zf,t0 important?
Why is the control vector Zf,t0 important?
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What does equation (4) explain?
What does equation (4) explain?
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What is "labor productivity"?
What is "labor productivity"?
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What is the purpose of the interaction term in equation (4)?
What is the purpose of the interaction term in equation (4)?
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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.
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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.