International Technological Specialization in Important Innovations:

Some Industry-Level Explorations

Carolina Castaldi* and Bart Los***University of Utrecht & GGDC, **University of Groningen & GGDC

EUKLEMS Consortium Meeting(Brussels, March 16 – 17, 2007)

This project is funded by the European Commission, Research Directorate General as part of the 6th Framework Programme, Priority 8, "Policy Support and Anticipating Scientific and Technological Needs".

2

Introduction

• Lisbon agenda: goals with respect to dynamism and competitiveness of European economy.

• Innovation is a key factor

• Problem: innovation is hard to measure• R&D expenditures are input indicators

• Surveys (CIS) sometimes subjectively filled out

• Patent counts imperfect measure

• Objectives of this project:• Add to the literature on patent-related innovation measures

• Gain industry-specific knowledge about the ability of European countries to generate important innovations, relative to the U.S., Japan and Asian Tigers.

3

Measures of innovation output:patent indicators

• Body of literature on patents as output indicator (Schmookler, Scherer, Griliches, etc). Conclusion: patents useful but noisy indicator of innovation• Patents very heterogeneous in importance (Hall, Pakes,

Schankerman, Harhoff, etc.)

• In some industries, patenting is not seen as the most appropriate method to protect intellectual property (Cohen, Walsh, Nelson)

• Patent offices are not always functioning as they should, with imperfect examination procedures of ‘prior art’ (Jaffe, Lerner)

• Citation counts can help in identifying important indicators (Trajtenberg, Jaffe, Hall)

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Raw Patent Counts per Country

Table 1

(p.h.w.: per 10,000 hrs worked)

In 1998: HU: 10.6; CZ: 2.4; PL: 1.0

No. of patents

1998

No. of patents

p.h.w. 1979

No. of patents

p.h.w. 1998

Annual growth (1979-1998)

DE 9095 69.9 231.5 0.039 FR 3674 58.0 212.0 0.052 GB 3464 36.7 127.9 0.049 IT 1584 21.6 64.3 0.041 FI 595 23.1 281.1 0.115 IE 74 8.0 32.5 0.063 JP 30840 81.6 453.6 0.077 US 80288 173.8 619.6 0.054 TW 3100 3.2 111.4 0.196 KR 3259 0.1 97.0 0.305

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Problems to cope with…

• Point of departure: patents that receive more citations in subsequent patents are more important• Problem 1: Patenting behavior varies across industries

• Problem 2: Citation behavior varies over time

• Problem 3: Citations are not received immediately

• Important innovations determined by constructing citation-based rankings by industry and year of grant for all patents issued;

• Distinction between important innovations and other innovations based on stylized fact concerning frequency distributions.

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Stylized fact: Fat tails

• Curved part: lognormally distributed

• Linear part: Pareto distributed

• Hill estimator for fatness of tail: erratic behavior if observations not Pareto distributed

• Drees-Kaufmann procedure to estimate cut-off point

• Important innovations act as “focal point” for subsequent research (Silverberg & Verspagen, Sanditov)

• Bootstrapping to obtain confidence intervals

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Data Sources

• NBER Patent-Citations Datafile• Numbers of citations (1975-1999) to all utility patents granted by

USPTO in 1963-1999• Our subset: 1970-1999 (>2.4M patents, of which 1.0M to non-US

inventors)

• Country of first inventor

• USPTO’s PATSIC-CONAME Database• Industry of manufacture (OTAF: 42 industries)

• “Fractional counting” in case of multiple OTAF codes

• Matching to 20 EUKLEMS industries

• 26 countries

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Proportions of Important (Patented) Innovations by Industry (averages, 1970-1998)

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%F

ood

Tex

tiles

Che

mic

als

Pet

role

um

Pla

stic

s

Min

eral

Iron

Met

al p

rod

Mac

hine

ry

Com

pute

rs

Ins

wire

Oth

ele

c

RT

V

Ele

ctr

com

p

Car

s

Shi

pbui

ldin

g

Airc

raft

Tra

ins

etc.

Inst

rum

ents

Oth

er m

an

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Estimate

BS-mean

BS-left

BS-right

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Proportion of Important Innovations over Time (all manufacturing)

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%19

70

1974

1978

1982

1986

1990

1994

1998

Estimate

BS mean

BS left

BS right

(unweighted averages of industry-specific proportions)

10

Technology Life Cycles(number of important innovations: 1970-1998)

electronics

machinery

computersRTV

aircraft

ins wireships

metal prod

oil

food

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Contributions to Worldwide Innovation(by period)…

Important Innovations (Total Manufacturing)

0

2,000

4,000

6,000

8,000

10,000

70-75 76-81 82-87 88-93

ROW

Tigers

Small European

Big European

JP

US

All Innovations (Total Manufacturing)

0

200,000

400,000

600,000

70-75 76-81 82-87 88-93

ROW

Tigers

Small European

Big European

JP

US

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…. and Contributions toEurope’s Important Innovations

(by period)

Important Innovations (Total Manufacturing)

0%

25%

50%

75%

100%

70-75 76-81 82-87 88-93

ROE

IT

NL

SE

FR

GB

DE

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Specialized in Important Innovations?

Proportion of Important Innovations(in %, total manufacturing)

0

0.5

1

1.5

2

70-75 76-81 82-87 88-93

DE

GB

FR

SE

NL

IT

ROE

US: 2.0 – 2.6%; Taiwan: 0.0 – 0.65%

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Specialized in Important Innovations?(industry-level results, 1990-1994)

Transformed RCTAs

-1.00

-0.80

-0.60

-0.40

-0.20

0.00

0.20

0.40

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Industries

DE

FR

GB

US

chemicals

plasticscars

aircraft

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Further research

• Use of OECD PatStat database on international patent citations instead of NBER database

• More systematic analysis of distribution of cut-off point estimator

• Industry-of-use instead of industry-of-manufacture (Johnson’s concordance), to link innovation indicator to EUKLEMS productivity indicators

• Study of relationship between important innovations and industry profitability using core EUKLEMS data

• Investigations to see whether techniques can be found to reduce time lag in identification process