This paper studies the impact of process and product innovations introduced by firms on employment growth in these firms. A simple model that relates employment growth to process innovations and to the growth of sales separately due to innovative and unchanged products is developed and estimated using comparable firm-level data from France, Germany, Spain and the UK. Results show that displacement effects induced by productivity growth in the production of old products are large, while those associated with process innovations, which are likely to be compensated by price decreases, appear to be small. The effects related to product innovations are, however, strong enough to overcompensate these displacement effects.

Executive SummaryHow much does US-based R&D benefit other countries and through what mechanisms? We test the "technology sourcing" hypothesis that foreign research labs located on US soil tap into US R&D spillovers and improve home country productivity. Using panels of UK and US firms matched to patent data we show that UK firms who had established a high proportion of US-based inventors by 1990 benefited disproportionately from the growth of the US R&D stock over the next 10 years. We estimate that UK firms' Total Factor Productivity would have been at least 5% lower in 2000 (about $14bn) in the absence of the US R&D growth in the 1990s.We also find that technology sourcing is more important for countries and industries who have "most to learn". Within the UK, the benefits of technology sourcing were larger in industries whose TFP gap with the US was greater. Between countries, the growth of the UK R&D stock did not appear to have a major benefit for US firms who located R&D labs in the UK. The "special relationship" between the UK and the US appears distinctly asymmetric.Our result has interesting implications for policy. Governments are generally keen to promote higher levels of domestic R&D activity, and the Member States of the European Union have recently expressed an aspiration to raise the level of R&D spending within the EU to 3% of GDP. One of the proposed ways of achieving this is through R&D tax credits. Evidence suggests that one of the main impacts of these is to encourage relocation of R&D. Our results suggest that policies which seek to achieve this target by inducing multinational European firms to relocate their existing R&D efforts away from the US and towards Europe could be at least partly counterproductive, as they may reduce the ability of European firms to benefit from US R&D spillovers.From the point of view of the US, our results suggest that while US R&D does generate large spillover benefits for the rest of the world, foreign firms must actually invest in innovative activity in the US in order to reap the full returns. When it comes to international technology spillovers it seems there is no such thing as a completely free lunch. Abstract How much does US-based R&D benefit other countries and through what mechanisms? We test the "technology sourcing" hypothesis that foreign research labs located on US soil tap into US R&D spillovers and improve home country productivity. Using panels of UK and US firms matched to patent data we show that UK firms who had established a high proportion of US-based inventors by 1990 benefited disproportionately from the growth of the US R&D stock over the next 10 years. We estimate that UK firms' Total Factor Productivity would have been at least 5% lower in 2000 (about $14bn) in the absence of the US R&D growth in the 1990s. We also find that technology sourcing is more important for countries and industries who have "most to learn". Within the UK, the benefits of technology sourcing were larger in industries whose TFP gap with the US was greater. Betwe...

This paper studies the impact of process and product innovations introduced by firms on employment growth in these firms. A simple model that relates employment growth to process innovations and to the growth of sales separately due to innovative and unchanged products is developed and estimated using comparable firm-level data from France, Germany, Spain and the UK. Results show that displacement effects induced by productivity growth in the production of old products are large, while those associated with process innovations, which are likely to be compensated by price decreases, appear to be small. The effects related to product innovations are, however, strong enough to overcompensate these displacement effects.

We investigate the relationship between the location of private sector R&D labs and university research departments in Great Britain. We combine establishment-level data on R&D activity with information on levels and changes in research quality from the Research Assessment Exercise. The strongest evidence for co-location is for pharmaceuticals R&D, which is disproportionately located near to relevant university research, particularly 5 or 5* rated chemistry departments. This relationship is stronger for foreign-owned labs, consistent with multinationals sourcing technology internationally. We also find some evidence for co-location with lower rated research departments in industries such as machinery and communications equipment. Executive SummaryThis paper provides the first comprehensive evidence on the extent to which businesssector R&D activity is located in the vicinity of high quality university research departments in Great Britain. We exploit rich data on R&D activity in specific product groups at the establishment level, together with novel measures of the presence and quality of university research in relevant subject areas from the Research Assessment Exercise (RAE), at a fine level of geographic disaggregation. The findings shed new light on the links between public research and business R&D and the role of geographic proximity in public-private sector interactions, which are topical policy issues in the UK and elsewhere.The strongest evidence for co-location is for pharmaceuticals R&D, which is disproportionately located near to relevant university research, particularly high quality chemistry departments. This relationship is stronger for foreign-owned labs, consistent with multinationals sourcing technology internationally and confirming the importance of world-class centres of research for attracting increasingly footloose R&D investment. We also find some evidence for co-location with lower quality rated research departments in industries such as machinery and communications equipment, which raises the possibility that firms may benefit both from proximity to frontier basic university research and from more applied public sector research activity. The latter may be measured as low quality research for the purposes of the RAE and funding allocations, but our results suggest that it may play a role in some areas of technology transfer and even in attracting foreign-owned R&D investment. However, without further supporting evidence on the underlying economic mechanisms at work, it is difficult to make specific policy recommendations based on these results.

We analyze the impact of product market competition on unemployment and wages, and how this depends on labour market institutions. We use differential changes in regulations across OECD countries over the 1980s and 1990s to identify the effects of competition. We find that increased product market competition reduces unemployment, and that it does so more in countries with labour market institutions that increase worker bargaining power. The theoretical intuition is that both firms with market power and unions with bargaining power are constrained in their behaviour by the elasticity of demand in the product market. We also find that the effect of increased competition on real wages is beneficial to workers, but less so when they have high bargaining power. Intuitively, real wages increase through a drop in the general price level, but workers with bargaining power lose out somewhat from a reduction in the rents that they had previously captured. JEL codes: E24, J50, L50. Executive Summary High rates of unemployment remain a key policy concern across many European countries. There is a large literature investigating the role of unions, taxes, and other labour market institutions in explaining variation in unemployment rates across countries. In a recent contribution to this literature, Nickell et al (2005) find that changes in these factors can explain about 55% of the rise in European unemployment from the 1960s to the first half of the 1990s. However, it seems likely that changes in labour market institutions alone cannot explain the wide divergences in unemployment experiences across countries. For example, Blanchard (2005) argues that a complex interaction between institutions and other shocks provides an important part of the explanation. In particular, conditions in the product market are also likely to play an important role. Theory suggests that product market competition is a key determinant of employment-in imperfectly competitive markets firms restrict output and thus employment. More intense competition pulls prices closer to marginal cost, increasing output demanded by consumers and, therefore, labour demanded by producers. A number of recent theoretical papers have emphasized the role of product market competition, as well as potentially important interactions between competition and labour market institutions. A recognition of the role of competition also lies behind many of the current attempts to reform product markets in Europe, including those laid out in the Lisbon Agenda and the Services Directive. In this paper we investigate the impact of increased product market competition on employment and wages using data across OECD countries over the 1980s and 1990s. Our contribution to the literature is twofold. First, we use time-varying policy reforms to provide exogenous variation in product market conditions, enabling us to provide stronger evidence that competition increases employment and real wages than exists so far. We show that these effects have been quantitatively important in explaining...

European Union countries have implemented widespread reforms to product markets in order to stimulate competition, innovation and economic growth. We provide empirical evidence that the reforms carried out under the EU Single Market Programme (SMP) were associated with increased product market competition, as measured by a reduction in average profitability, and with a subsequent increase in innovation intensity and productivity growth for manufacturing sectors. In our analysis we exploit exogenous variation in the expected impact of the SMP across countries and industries to identify the effects of reforms on average profitability, and the effects of profitability on innovation and productivity growth. implemented widespread reforms to product markets, aiming to stimulate competition and improve economic performance. Economic theory also suggests that changes in the degree of product market competition can influence innovative activity, and policy-makers in many EU countries have appealed to further competition-enhancing reforms as a way to raise rates of innovation and growth. In order to shed light on whether product market reforms are likely to help in achieving these goals, this paper investigates the impact that past reforms, in the form of the Single Market Programme (SMP), had on innovation activity in the EU. KeywordsThe paper provides empirical evidence that the reforms carried out under the SMP were associated with increased product market competition, as measured by a reduction in average profitability, and with a subsequent increase in innovation intensity and productivity growth for manufacturing sectors. In our analysis we exploit exogenous variation in the expected impact of the SMP across countries and industries to identify the effects of reforms on average profitability, and the effects of profitability on innovation and productivity growth.Our results have a bearing on the expected effects of possible future reforms, for example those being considered under the Lisbon Agenda. Our findings suggest that reforms that put pressure on firm profitability are likely to lead to increased innovation, all else equal.This suggests that such reforms could at least go some way towards increasing innovation intensity within the EU.3

This paper studies the impact of process and product innovations introduced by firms on employment growth in these firms. A simple model that relates employment growth to process innovations and to the growth of sales separately due to innovative and unchanged products is developed and estimated using comparable firm-level data from France, Germany, Spain and the UK. Results show that displacement effects induced by productivity growth in the production of old products are large, while those associated with process innovations, which are likely to be compensated by price decreases, appear to be small. The effects related to product innovations are, however, strong enough to overcompensate these displacement effects.

This paper uses a unique new data set on manufacturing firms in Brazil and India to estimate production functions, augmented by information and communications technology (ICT). We find a strong positive association between ICT capital and productivity in both countries that is robust to several different specification tests. The paper also breaks new ground when using the Indian data to investigate the effect of the institutional and policy environment on ICT capital investment and productivity. We find that poorer infrastructure quality and labor market policy are associated with lower levels of ICT adoption, while poorer infrastructure is also associated with lower returns to investment. © 2011 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.