Innovation Policy and the Economy 2019

The NBER's conference on Innovation Policy and the Economy 2019 took place April 16 in Washington DC. Research Associates Josh Lerner of Harvard University and Scott Stern of MIT organized the meeting, sponsored by the Ewing Marion Kauffman Foundation. These researchers' papers were presented and discussed:

William R. Kerr, Harvard University and NBER

The Gift of Global Talent (based on his recent book)

Talent is the most precious resource for today's knowledge-based economy, and a significant share of the U.S. skilled workforce in technology fields is foreign born. The United States has long held a leading position in attracting global talent, but the gap to other countries is weakening. Immigration policies like the H-1B visa program shape the admissions of foreign workers to the country and grant a particularly strong gatekeeping role to sponsoring firms and universities. Kerr explores the data around global talent flows and some of the economic implications of an employer-driven immigration approach.

Ashish Arora and Sharon Belenzon, Duke University and NBER; Andrea Patacconi, Norwich Business School; and Jungkyu Suh, Duke University

The Changing Structure of American Innovation: Cautionary Remarks for Economic Growth

A defining feature of modern economic growth is the systematic application of science to advance technology. However, despite continuous progress in scientific knowledge, recent productivity growth in the U.S. has been disappointing. Arora, Belenzon, Patacconi, and Suh review major changes in the American innovation ecosystem over the past century and note that the past three decades have been marked by a growing division of labor between universities focusing on research and large corporations focusing on development. Knowledge produced by universities is not often in forms that can be readily digested and turned into new goods and services by companies, especially as large companies themselves withdraw from research. Small firms and university technology transfer offices cannot fully substitute for corporate research, which integrated multiple disciplines and components at the scale required to solve significant technical problems. Therefore, whereas the division of innovative labor may have raised the volume of science by universities, it also slowed, at least for a period of time, the transformation of that knowledge into novel products and processes.

Margaret Kyle, MINES ParisTech

The Alignment of Innovation Policy and Social Welfare: Evidence from Pharmaceuticals

This chapter provides an overview of various policies linked to pharmaceutical innovation. Kyle discusses the conditions necessary to align social and private welfare for both "pull" and "push" innovation policies, in particular those based on market exclusivity (such as patents) and those that provide targeted research support. She summarizes the empirical evidence available on the performance of these policies. The researcher emphasizes two points sometimes overlooked in policy debates. First, other policies and regulatory actions that affect the efficiency of health care markets may have indirect effects on pharmaceutical innovation, and change the efficacy of innovation policies. Second, because the market for most pharmaceuticals is global, the effects of domestic innovation policy may be dampened if designed in isolation.

Fiona Scott Morton, Yale University and NBER; Carl Shapiro, University of California, Berkeley and NBER; and Giulio Federico, European Commission

Antitrust and Innovation: Welcoming and Protecting Disruption

Edward L. Glaeser, Harvard University and NBER, and Naomi Hausman, Hebrew University

The Spatial Mismatch Between Innovation and Joblessness (NBER Working Paper No. 25913)

American technological creativity is geographically concentrated in areas that are generally distant from the country's most persistent pockets of joblessness. Should innovation policy attempt to engender more innovation is distressed areas? Glaeser and Hausman explore these questions. The primarily inventive parts of innovation policy, such as N.I.H. grants, can aid under-performing areas, possibly through health improvements that reduce the share of people on Disability Insurance, without any spatial reallocation. Moreover, since research funding is presumably already designed to maximize knowledge production, spatial reallocation may come at a considerable cost. The educational aspects of innovation policy, such as Pell Grants, work-study and Federal overhead reimbursement on grants, can reflect regional realities better and do more to encourage employment in distressed areas. Lifting the cap on H1B visas in poorer places can also enhance local human capital. Finally, there is particular scope for geographically targeted entrepreneurship policy, such as eliminating the barriers to new business formation near universities and in distressed places. Spatially targeted employment subsidies can also encourage more labor-intensive innovation in depressed areas.

Albert Bravo-Biosca, Nesta

Experimental Innovation Policy

Experimental approaches are increasingly being adopted across many policy fields, but innovation policy has been lagging. Bravo-Biosca reviews the case for policy experimentation in this field, describes the different types of experiments that can be undertaken, discusses some of the unique challenges to the use of experimental approaches in innovation policy, and summarizes some of the emerging lessons, with a focus on randomized experiments. The research concludes describing how at the Innovation Growth Lab we've been working with governments across the OECD to help them overcome the barriers to policy experimentation in order to make their policies more impactful.

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