van Reenen, and participants at the NBER conference on Innovation Policy and the Economy. Leo Ortega Moncada provided excellent research assistance. All errors are our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

This paper exploits a unique historical experiment to estimate how information frictions distort international trade: the establishment of the transatlantic telegraph in 1866. I use newly collected data on cotton prices, trade, and information flows from historical newspapers and find that the average and volatility of the transatlantic price difference fell after the telegraph, while average trade flows increased and became more volatile. Using a trade model in which exporters use the latest news about a foreign market to forecast expected prices, I estimate the efficiency gains of the telegraph to be equivalent to 8 percent of export value. (JEL D83, F12, F14, L96, N71, N73)

In the US and many other OECD countries, expenditures for defense-related R&D represent a key policy channel through which governments shape innovation, and dwarf all other public subsidies for innovation. We examine the impact of government funding for R&D-and defense-related R&D in particular-on privately conducted R&D, and its ultimate effect on productivity growth. We estimate models that relate privately funded R&D to lagged government-funded R&D using industry-country level data from OECD countries and firm level data from France. To deal with the potentially endogenous allocation of government R&D funds we use changes in predicted defense R&D as an instrumental variable. In both datasets, we uncover evidence of "crowding in" rather than "crowding out," as increases in government-funded R&D for an industry or a firm result in significant increases in private sector R&D in that industry or firm. A 10% increase in government-financed R&D generates 4.3% additional privately funded R&D. An analysis of wages and employment suggests that the increase in private R&D expenditure reflects actual increases in R&D employment, not just higher labor costs. Our estimates imply that some of the existing crosscountry differences in private R&D investment are due to crosscountry differences in defense R&D expenditures. We also find evidence of international spillovers, as increases in government-funded R&D in a particular industry and country raise private R&D in the same industry in other countries. Finally, we find that increases in private R&D induced by increases in defense R&D result in significant productivity gains.

Abstract-We introduce a novel empirical strategy to measure the size of credit shocks. Theoretically, we show that credit shocks reduce the value of long-term relative to short-term investments. Empirically, we can therefore compare the reduction of long-term relative to short-term investments within firms, allowing for firm-times-year fixed effects. Using Spanish firmlevel data, we estimate the credit crunch to be equivalent to an additional tax rate of around 11% on the longest-lived capital. To pin down credit constraints as the underlying cause, we apply triple-differences strategies using foreign ownership or precrisis debt maturity.

This chapter reviews the empirical economics literature on the impact of trade liberalization on firms' innovation-related outcomes. We define and examine four types of shocks to trade flows: import competition, export opportunities, access to imported intermediates, and foreign input competition. Our review reveals interesting heterogeneities at the country and firm levels. In emerging countries, trade liberalization appears to spur productivity and innovation. In developed countries, export opportunities and access to imported intermediates tend to encourage innovation, but the evidence on import competition is mixed, especially for firms in the United States. At the firm level, the positive effects of trade on innovation are more pronounced at the initially more productive firms while the negative effects are more pronounced at the initially less productive firms.

Wan provided excellent research assistance. The title of the paper is borrowed from www.spinningtheweb.org.uk. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

as well as seminar participants at various institutions for their comments. Chen acknowledges financial support from the University of Hong Kong and from Hong Kong General Research Fund (project code: 17507916), and Steinwender acknowledges financial support from McKinsey & Co. for acquiring the data. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

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