Measurement of innovation, productivity and growth

1
Measurement of innovation, productivity and growth

• Outline
• How can innovation be measured?
• Illustrations of innovation statistics
• Productivity at the firm, industry and economy
  level
• Comparing productivity and growth across countries

2
Introduction

• The basic motivation for this chapter is to
  convey to students that innovation and its
  implications can be measured and analysed
• There are many problems in this process, but this
  is true across all of economic policy
• Without measurement analysis, understanding and
  policy will be based on rhetoric, anecdote and
  lobbying
• Since innovation is defined as new ideas that
  add value, this automatically means that
  innovation is driving force behind growth
• Clearly some authors think of technology, or
  human capital, as driving growth. These are
  discussed more in Chap 8, but essentially these
  are different perspectives on the same process.
  We argue that innovation is a better generic
  term.

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How can innovation be measured?

• Surveys
• Chapter discusses Community Innovation Survey
  (CIS), but lecturer may be able to access
  local/regional/national examples
• Input measures
• RD is main measure (see next slide)
• Output measures
• Patents and other IP
• Ultimately, productivity and growth are the
  outputs
• Note that Innovation Indexes tend to mix up
  inputs and outputs in very ad hoc way

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of firms involved in innovative activities, CIS
1998-2000
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RD

• This discussion of RD is extended in Chap. 4
• It is possible to extend this discussion here by
• Focusing on national trends, industry breakdowns
  and specific firms
• In most countries there are a few major companies
  that dominate absolute amount, but amount done by
  smaller companies may be very important for
  future growth
• Specific RD policies (see later discussion in
  Chap.11 section 11.3)
• Problems of compiling real RD measures and cross
  country measures

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RD (OECD Frascati Manual)

• Basic Research experimental/ theoretical work
  undertaken primarily to acquire new knowledge of
  the underlying foundations and phenomena and
  observable facts, without any particular
  application or use in view
• Applied Research original investigation
  undertaken in order to acquire new knowledge ,
  directed primarily towards a specific practical
  aim or objective
• Experimental Development systematic work,
  drawing on existing knowledge gained from
  research and practical experience, directed to
  producing new materials, products and devices to
  installing new processes, systems or services to
  improving substantially those already produced or
  installed.

Science
Technology
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RD in Europe, Japan and the United States (2003,
or 2002)
 
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RD personnel in Europe and Japan (2004, or 2003)
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Patent applications by domestic residents by
country (RH scale US Japan)
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Trademark applications by domestic residents by
country (RH scale US Japan)
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Productivity and growth

• To measure real output we use value added
• Value added is defined as sales minus raw
  materials used
• Indicates what the firm has truly produced when
  transforming the raw materials into the final
  product
• Both sales and raw materials have to be deflated
  for any price inflation when measuring over time
• Definitions of partial factor productivity
• labour productivity (value added per unit of
  labour)
• capital productivity (value added per unit of
  capital)
• High labour productivity is often largely
  explained by high levels of capital per worker
  (e.g. in mining and the steel industry)
• High capital productivity will be present when
  labour is used intensively (e.g. in developing
  countries with scarce capital)

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Measuring total factor productivity

• This measure improves on partial factor
  productivity by correcting for growth in inputs
• Derivation of total factor productivity
• Suppose value added (Y) is produced by two input
  factors capital (K) and labour (L) and by total
  factor productivity (A) according to
• Y A K a L b
• Then growth of TFP is calculated by residual
• gA gY a gK b gL
• Growth in TFP is equal to the growth in value
  added, less a times the growth in capital input
  and b times the growth in labour input

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Annual average growth in GDP per hour worked
(1970-2006)
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Average growth of GDP per capita in emerging
markets
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Other economic growth resources

• There is a vast amount of productivity and
  economic growth data on web that could be used to
  look at specific countries, periods or industries
  e.g.
• National statistical agencies
• World Bank, OECD (includes regular country
  studies), IMF
• The Groningen Growth and Development Centre
• Penn World Table

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Possible additional topics

• There are a large number of other areas that can
  be mentioned, or developed, in a course,
  including
• Service sector productivity (e.g. Bosworth, B.
  and J. Triplett (2003). "Productivity Measurement
  Issues in Services Industries "Baumol's Disease"
  Has Been Cured." The Brookings Institution,
  September 1.
• IT and productivity (e.g. Triplett, J. E. (1999).
  "The Solow Productivity Paradox What Do
  Computers Do to Productivity?" Canadian-Journal-of
  -Economics 32(2)(April 1) 309-34.
• Regulation and productivity (e.g. Crafts, N.
  (2006). "Regulation and Productivity Performance
  " Oxford Review of Economic Policy 22(2)
  186-202.

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Questions

• List the input, and output, measures of
  innovation. How should one deal with so many
  possible measures?
• RD is the only important measure of
  innovation. Discuss.
• Choose a selection of firms, or countries, and
  attempt to produce a ranking or innovation
  scoreboard.
• What is meant by partial productivity measures?
  Should only total factor productivity be used?
• What measurement issues should be considered when
  comparing GDP per capita across countries? What
  about when comparing GDP per capita through time?
• What is the use of growth accounting studies?

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References

• Griliches, Z. (1990) Patent statistics as
  economic indicators a survey, Journal of
  Economic Literature, XXVIII (December),
  1661-1707.
• Lipsey, R. G. and K. I. Carlaw (2004), 'Total
  factor productivity and the measurement of
  technological change', Canadian Journal of
  Economics, 37(4), 1118-50.
• Schreyer, P. and D. Pilat (2001) "Measuring
  Productivity, OECD Economic Studies 33 128.
• The Economist (14 Nov. 2009) Economic Focus
  Secret Sauce.