Working Paper: NBER ID: w4931
Authors: Jonathan Eaton; Samuel Kortum
Abstract: We model the invention of new technologies and their diffusion across countries. Our model predicts that, eventually, all countries will grow at the same rate, with each country's productivity ranking determined by how rapidly it adopts inventions. The common growth rate depends on research efforts in all countries, while research effort is determined by how much inventions earn at home and abroad. Patents affect the return to invention. We relate the decision to patent an invention internationally to the cost of patenting in a country and to the expected value of patent protection in that country. We can thus infer the direction and magnitude of the international diffusion of technology from data on international patenting, productivity, and research. We fit the model to data from the five leading research economies. The parameters indicate how much technology flows between these countries and how much each country earns from its inventions domestically and elsewhere. Our results imply that foreign countries are important sources of technology even though countries earn most of their return to innovation at home. For example, about half of U.S. productivity growth derives from foreign technology yet U.S. investors earn 98 per cent of the revenue from their inventions domestically.
Keywords: international patenting; technology diffusion; productivity growth
JEL Codes: O31; O34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| technology diffusion (O33) | productivity growth (O49) |
| foreign technology (F23) | domestic productivity (O49) |
| international patenting (O34) | technology diffusion (O33) |
| technology diffusion (O33) | productivity levels (O49) |
| market size, cost of patenting, strength of IP protection (O34) | decision to patent (O34) |
| decision to patent (O34) | returns to R&D (O32) |
| research efforts (C90) | common growth rate (O40) |
| common growth rate (O40) | relative productivity (O49) |