Economics of an Innovation System: Inside and Outside the Black Box

289 Pages·2018·5.082 MB·English

by  Tsutomu Harada

i
Economics of an Innovation System
Existing literature looks at national innovation systems from the perspective of
either “inside the black box” or “outside the black box”. This is the first book
that analyzes both the inside and outside of the black box using a general
equilibrium framework.
Thebooklooks atwhatisoutsidethe blackboxandprovides modelsofpath-
dependentendogenousgrowth;examinesthedynamicsoftheblackboxfromthe
intersectoralperspectiveoftheeconomy;andproposesaninnovationflowmatrix.
Italso takes into accountboth businesscyclesandendogenousinnovation inthe
unified New Keynesian dynamic stochastic general equilibrium (DSGE) model
and examines how business cycles and other policy shocks affect endogenous
innovation.
Theunifiedtreatmentofthenationalinnovationsystemfromperspectivesboth
inside and outside the black box using rigorous economic models and empirical
analyses makes this an enlightening work, shedding new light on innovation
economics.
Tsutomu Harada is Professor of Industrial Economics at Kobe University,
Japan. He received Ph.D. in economics from Stanford University and Ph.D. in
business administration from Kobe University. His research interests include
innovation economics, technology management, and strategy.
Routledge Studies in the Economics of Innovation
The Routledge Studies in the Economics of Innovation series is our home for
comprehensive yet accessible texts on the current thinking in the field. These
cutting-edge, upper-level scholarly studies and edited collections bring together
robusttheoriesfromawiderangeofindividualdisciplinesandprovidein-depth
studies of existing and emerging approaches to innovation, andthe implications
of such for the global economy.
Automation, Innovation and Economic Crisis
Surviving the Fourth Industrial Revolution
Jon-Arild Johannessen
The Economic Philosophy of the Internet of Things
James Juniper
The Workplace of the Future
The Fourth Industrial Revolution, the Precariat and the Death of Hierarchies
Jon-Arild Johannessen
Economics of an Innovation System
Inside and Outside the Black Box
Tsutomu Harada
For more information about this series, please visit: www.routledge.com/
Routledge-Studies-in-the-Economics-of-Innovation/book-series/ECONINN
iii
Economics of an
Innovation System
Inside and Outside the Black Box
Tsutomu Harada
Firstpublished2019
byRoutledge
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v
Contents
List of figures vii
List of tables viii
Introduction 1
PART I
Outside the black box: path-dependent growth 19
1 Path-dependent economic growth with technological trajectory 21
2 Path-dependent economic progress and regress 40
3 Division of labor in innovation between general purpose
technology and special purpose technology 58
PART II
Dynamics of the black box: intersectoral growth 81
4 Advantages of backwardness and forwardness with shifting
comparative advantage 83
5 Changing productive relations, linkage effects and
industrialization 100
6 Structural change and economic growth with
relation-specific investment 118
PART III
Inside the black box: innovation mechanism 139
7 Focusing device as innovation mechanism and
cluster growth 141
vi Contents vi
8 Managing innovation probabilities through focusing
device 156
9 Three-step flow of knowledge communication 171
PARTIV
Measuring the black box: innovation flow matrix and
policy evaluation 191
10 Model of intersectoral flow of technology using technology
and innovation flow matrices 193
11 Estimating innovation flow matrix and innovation linkages
in the East Asian region and the United States 209
12 Endogenous innovation and macroeconomic shocks
in a New Keynesian DSGE model 236
References 259
Index 273
vii
Figures
1.1 The growth paths 33
1.2 The growth paths and convergence clubs 34
5.1 Determination of backward and forward linkages 108
5.2 Effects of R&D shocks 110
5.3 Effects of capital share shocks and an increase of labor share 111
5.4 Effects of labor share shock 111
5.5 Effects of vertical specialization 113
6.1 Determination of forward linkages 127
8.1 Innovation trajectories 166
8.2 Three types of dynamic strategies 167
8.3 Shifts in competitive advantages and innovation trajectories 167
11.1 Production structure 212
12.1 Preference shock (eb) 248
t
12.2 Government expenditure shock (eg) 249
t
12.3 Investment adjustment cost shock (ei) 249
t
12.4 Investment-specific technology shock (ec) 250
t
12.5 Price markup shock (ep) 251
t
12.6 Wage shock (ew) 251
t
12.7 Monetary policy shock (er) 252
t
12.8 Productivity shock (es) 253
t
12.9 Endogenous innovation shock (ea) 254
t
Tables
5.1 Correlation between backward and forward linkages 101
8.1 Capability management in two-tier technology systems 160
8.2 Management of technology systems 162
9.1 Descriptive statistics 182
9.2 Determinants of boundary spanning individuals (TOBIT) 184
9.3 Determinants of the frequency of internal communication 185
9.4 Percentageofboundaryspanningindividualswhocommunicate
with transformers 186
10.1 Total, direct, and indirect effects 204
10.2 Indirect effects of key sectors 205
11.1 Innovation input–output matrix (G0) (excluding the USA) 222
11.2 Innovation input–output matrix (G0) (with the USA) 225
11.3a Innovation backward and forward linkages 227
11.3b Innovation backward and forward linkages 228
11.4 Z tests for pairwise differences in innovation forward linkages
(without US) 230
11.5 Z tests for pairwise differences in innovation forward linkages
(with US) 231
11.6 Average growth rate and volatility 232
12.1 Parameter estimation 246
12.2 Variance decompositions 247
1
Introduction
1 Inside and outside the black box
One thing that is obvious about societies that have achieved certain degrees of
industrialization is that innovation has been the critical variable in accounting
forthedynamicsoftheeconomiesandtheresultinglevelsofeconomicprosper-
ity. Industrial economies have acquired unusual skills in generating, diffusing,
and elaborating innovation, and understanding innovation is basic to compre-
hending economic growth and development. According to Rosenberg (1994),
to further investigate the role of innovation in economic growth, two relevant
questions must be answered: “what can be said about the manner in which the
stock of technological knowledge grows over time? And, to what factors is it
responsive,andinwhatways?”However,satisfactoryanswerstothesequestions
have not been provided, at least through formal analysis.
What is less obvious than the critical role of innovation is the underlying
mechanismofinnovation,orinsidetheblackbox(Rosenberg,1982),anditseco-
nomic implications, which can be referred to as outside the black box. This
implies that an integrative approach has to be taken to explore both inside and
outside the black box. On the one hand, the existing literature on innovation
hasstudiedinnovationprocessesatthefirmlevel,withlessattentionpaidtoeco-
nomicconsequencesandimplicationsattheeconomylevel.Ontheotherhand,a
relatively recent development in the field of endogenous economic growth are
studies that have incorporated endogenous innovation in a general equilibrium
frameworkanddrawnvariouseconomicpolicyimplications.However,theinno-
vationmechanismutilizedpresupposesasimpleinnovationfunction,inwhicha
positive relationship is assumed between R&D investment as an input and the
arrival of innovation in a deterministic or stochastic manner. As a result, in
the endogenous growth literature, an innovation mechanism is assumed, rather
than explored. Instead, the literature has focused on drawing out the economic
implications of this simple innovation function.
Thepurposeofthisbookistoprovideseveralmodelsregardingtheeconomics
of the innovation system, which can be applied to analyses of both inside and
outside the black box. Of course, it is difficult to simultaneously integrate a
detailed description of the innovation process as in the innovation management