Working Paper: CEPR ID: DP7089
Authors: Masayuki Hirukawa; Masako Ueda
Abstract: For the sample period of 1965-1992, Kortum and Lerner (2000) find that venture capital (VC) investments have a positive impact on patent count at industry level, and this impact is larger than that of R&D expenditures. We confirm that this positive impact continued to be present and became even stronger in late 90s during which VC industry experienced an unprecedented growth. We then proceed to study if this positive impact of VC is also present on productivity growth, which is a measure of innovation alternative to patent count. Unlike the impact on patent count, we do not find that VC investment affects total factor productivity growth. We do find that VC investment is positively associated with labor productivity but this positive impact is originated from the technology substitution from labor to other productive inputs such as energy and material. Therefore, our finding suggests that, at industry level, VC investment increases the patent propensity but may not necessarily improve the productive efficiency. Various interpretations are offered why this may be the case.
Keywords: factor substitution; innovation; patent; productivity; venture capital
JEL Codes: D24; G24; O31; O32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| VC investment (G24) | patent counts (O34) |
| R&D expenditures (O32) | patent counts (O34) |
| VC investment (G24) | labor productivity growth (O49) |
| labor productivity growth (O49) | TFP growth (O49) |
| VC investment (G24) | originality of patents (O34) |
| VC investment (G24) | decline in patent quality (L15) |