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September 2014
Working Paper Number:
CES-14-35
This paper presents a novel empirical study of innovation practices of U.S. companies and their relation to productivity levels using new business micro data from the Business Research and Development and Innovation Survey (BRDIS) for the years 2008-2011. We use factor analysis to reduce a set of inputs and outputs of innovation activities into four latent unobserved innovation modes or practices. Companies are grouped according to their scores across the four factors to see that in large, small and medium companies more than one mode of innovation practices prevails. The next step in the analysis links different types of innovation practices to levels of productivity using regression analysis. The innovation modes have a statistically significant positive relation with the level of productivity. The paper demonstrates the possibility of taking into account the multidimensionality of innovation without the use of composite indicators.
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The Location of Industrial Innovation: Does Manufacturing Matter?
March 2013
Working Paper Number:
CES-13-09
What explains the location of industrial innovation? Economists have traditionally attempted to answer this question by studying firm-external knowledge spillovers. This paper shows that firm-internal linkages between production and R&D play an equally important role. I estimate an R&D location choice model that predicts patents by a firm in a location from R&D productivity and costs. Focusing on large R&D-performing firms in the chemical industry, an average-sized plant raises the firm's R&D productivity in the metropolitan area by about 2.5 times. The elasticity of R&D productivity with respect to the firm's production workers is almost as large as the elasticity with respect to total patents in the MSA, while proximity to academic R&D has no significant effect on R&D productivity in this sample. Other manufacturing industries exhibit similar results. My results cast doubt on the frequently-held view that a country can divest itself of manufacturing and specialize in innovation alone.
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Growth Through Heterogeneous Innovations
June 2012
Working Paper Number:
CES-12-08
We study how exploration versus exploitation innovations impact economic growth through a tractable endogenous growth framework that contains multiple innovation sizes, multiproduct firms, and entry/exit. Firms invest in exploration R&D to acquire new product lines and exploitation R&D to improve their existing product lines. We model and show empirically that exploration R&D does not scale as strongly with firm size as exploitation R&D. The resulting framework conforms to many regularities regarding innovation and growth differences across the firm size distribution. We also incorporate patent citations into our theoretical framework. The framework generates a simple test using patent citations that indicates that entrants and small firms have relatively higher growth spillover effects.
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Who Works for Startups? The Relation between Firm Age, Employee Age, and Growth
October 2011
Working Paper Number:
CES-11-31
We present evidence that young employees are an important ingredient in the creation and growth of firms. Our results suggest that young employees possess attributes or skills, such as willingness to take risk or innovativeness, which make them relatively more valuable in young, high growth, firms. Young firms disproportionately hire young employees, controlling for firm size, industry, geography and time. Young employees in young firms command higher wages than young employees in older firms and earn wages that are relatively more equal to older employees within the same firm. Moreover, young employees disproportionately join young firms that subsequently exhibit higher growth and raise venture capital financing. Finally, we show that an increase in the regional supply of young workers increases the rate of new firm creation. Our results are relevant for investors and executives in young, high growth, firms, as well as policymakers interested in fostering entrepreneurship.
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Nature Versus Nurture in the Origins of Highly Productive Businesses: An Exploratory Analysis of U.S. Manufacturing Establishments
September 2011
Working Paper Number:
CES-11-26
This paper investigates the origins of productivity leaders, those that operate close to and help push out the production frontier. Do such businesses emerge as top performers from the very beginning of their lives, for example as the consequence of an outstanding founding idea, technology, or location? Or, at the other extreme, do they appear initially as completely average (or even underperformers) that exhibit gradual improvement as they learn and develop with age? To answer this question we draw upon five decades of U.S. Census of Manufacturing (CM) establishment-level data, tracing the productivity leaders of the most recent CM (2007) back over their observed life spans. We also examine possible industry-level correlates of variation in the extent of nature versus nurture that are suggested by theories of industry dynamics and economic growth.
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Do Market Leaders Lead in Business Process Innovation? The Case(s) of E-Business Adoption
April 2011
Working Paper Number:
CES-11-10
This paper investigates the relationship between market position and the adoption of IT-enabled process innovations. Prior research has focused overwhelmingly on product innovation and garnered mixed empirical support. I extend the literature into the understudied area of business process innovation, developing a framework for classifying innovations based on the complexity, interdependence, and customer impact of the underlying business process. I test the framework's predictions in the context of ebuying and e-selling adoption. Leveraging detailed U.S. Census data, I find robust evidence that market leaders were significantly more likely to adopt the incremental innovation of e-buying but commensurately less likely to adopt the more radical practice of e-selling. The findings highlight the strategic significance of adjustment costs and co-invention capabilities in technology adoption, particularly as businesses grow more dependent on new technologies for their operational and competitive performance.
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Entry, Growth, and the Business Environment: A Comparative Analysis of Enterprise Data from the U.S. and Transition Economies
September 2010
Working Paper Number:
CES-10-20
What role does new firm entry play in economic growth? Are entrants and young firms more or less productive than incumbents, and how are their relative productivity dynamics affected by financial constraints and the business environment? This paper uses comprehensive manufacturing firm data from seven economies (United States, Georgia, Hungary, Lithuania, Romania, Russia, and Ukraine) to measure new firm entry and the productivity dynamics of entrants relative to incumbents in the same industries. We contrast hypotheses based on 'leapfrogging,' in which entrants embody superior productivity, with an 'experimentation' approach, in which entrants face uncertainty and incumbents can innovate. The results imply that leapfrogging is typical of early and incomplete transition, but experimentation better characterizes both the US and mature transition economies. Improvements in financial markets and the business environment tend to raise both the entry rate and productivity growth, but they are associated with negative relative productivity of entrants and smaller contributions of reallocation to growth among both entrants and incumbents.
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Electronic Networking Technologies, Innovation Misfit, and Plant Performance
February 2010
Working Paper Number:
CES-10-03
Prior work on information technology (IT) adoption and economic impacts typically employs an instrumental logic in which firms lead with innovation when they possess characteristics that make it economically beneficial to do so and lag when they do not. However, firms may deviate from this idealized picture when they possess characteristics of an innovation laggard but exhibit the behavior of an innovation leader (or vice versa), with implications for the returns to IT investment. This study develops a conceptual framework and hypotheses regarding the implications of such deviations, which we call innovation misfits. Using a data set comprising measures of the adoption of electronic networking technologies (ENT) in over 25,000 U.S. manufacturing plants, productivity regression estimation reveals a consistent pattern that the association between IT and productivity is diminished in the presence of innovation misfit. We discuss the implications of innovation misfit for scholarship and management practice, which are numerous.
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The Adoption and Diffusion of Organizational Innovation: Evidence for the U.S. Economy
June 2007
Working Paper Number:
CES-07-18
Using a unique longitudinal representative survey of both manufacturing and nonmanufacturing businesses in the United States during the 1990's, I examine the incidence and intensity of organizational innovation and the factors associated with investments in organizational innovation. Past profits tend to be positively associated with organizational innovation. Employers with a more external focus and broader networks to learn about best practices (as proxied by exports, benchmarking, and being part of a multi-establishment firm) are more likely to invest in organizational innovation. Investments in human capital, information technology, R&D, and physical capital appear to be complementary with investments in organizational innovation. In addition, nonunionized manufacturing plants are more likely to have invested more broadly and intensely in organizational innovation.
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Measuring U.S. Innovative Activity
March 2007
Working Paper Number:
CES-07-11
Innovation has long been credited as a leading source of economic strength and vitality in the United States because it leads to new goods and services and increases productivity, leading to better living standards. Better measures of innovative activities'activities including but not limited to innovation alone'could improve what we know about the sources of productivity and economic growth. The U.S. Census Bureau either currently collects, or has collected, data on some measures of innovative activities, such as the diffusion of innovations and technologies, human and organizational capital, entrepreneurship and other worker and firm characteristics, and the entry and exit of businesses, that research shows affect productivity and other measures of economic performance. But developing an understanding of how those effects work requires more than just measures of innovative activity. It also requires solid statistical information about core measures of the economy: that is, comprehensive coverage of all industries, including improved measures of output and sales and additional information on inputs and purchased materials at the micro (enterprise) level for the same economic unit over time (so the effects can be measured). Filling gaps in core data would allow us to rule out the possibility that a measure of innovative activity merely proxies for something that is omitted from or measured poorly in the core data, provide more information about innovative activities, and strengthen our ability to evaluate the performance of the entire economy. These gaps can be filled by better integrating existing data and by more structured collections of new data.
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