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Innovation and Structural Reforms

Paper Session

Saturday, Jan. 6, 2018 8:00 AM - 10:00 AM

Marriott Philadelphia Downtown, Grand Ballroom Salon D
Hosted By: Association for Comparative Economic Studies
  • Chair: Catherine L. Mann, OECD

Connecting to Power: Political Connections, Innovation, and Firm Dynamics

Ufuk Akcigit
,
University of Chicago
Salome Baslandze
,
Einaudi Institute for Economics and Finance
Francesca Lotti
,
Bank of Italy

Abstract

Do political connections affect firm dynamics, innovation, and creative destruction? We study the Italian firms and their workers to answer this question. Our analysis uses a brand-new data spanning the period from 1993 to 2014 where we merge: (i) firm-level balance sheet data, (ii) the social security data on the universe of workers, (iii) patent data from the European Patent Office, (iv) registry of local politicians, and (v) detailed data on local elections in Italy. We find that firm-level political connections are widespread, especially among large firms, and that industries with larger share of politically connected firms feature worse firm dynamics. Market leaders are much more likely to be politically connected and less likely to innovate, compared to their competitors. In addition, connections relate to higher survival and growth in employment and sales but not in productivity. We build a firm dynamics model where we allow firms to invest in innovation and/or political connection to advance their productivity and to overcome regulatory or bureaucratic burden. The model highlights the new interaction between static gains and dynamic losses from rent-seeking for aggregate productivity.

Innovation and Structural Policies and Growth: Evidence From Small and Large OECD Countries?

Balazs Egert
,
OECD

Abstract

This paper aims to quantify the impact of innovation and structural policies on per capita income in
OECD countries. The paper first seeks to link inputs on basic (Nobel prize winners) and applied
research (R&D spending) to innovation outcomes (patents). It then analyses the effect of innovation
outcomes and product and labour market reforms, and the interaction of these policies, on multi-factor
productivity, physical capital and employment. The paper then raises the question whether innovation
policies and structural reforms have different effects in small countries. Finally, the paper quantifies
the overall macroeconomic impact of past reforms for small and large OECD countries.

Why Do Reforms Occur in Crisis Times?

Romain Ranciere
,
University of Southern California
Aaron Cornell
,
University of California-Los Angeles

Abstract

Structural reforms, whereby organized groups lose their power to extract rents, tend to occur in bad
times rather than during prosperous times. We present a model where rent-seeking leads to economic
decline, which, in turn, will make a future reform inevitable when times will be bad enough.
Furthermore, we show that in the case of trade liberalization–a prime example of structural reform–
there is strong empirical evidence that reforms are induced by severe crises.

Business Cycle Sinchronization in a Currency Union: Taking Stock of the Evidence

Nauro Campos
,
Brunel University London
Jarko Fidrmuc
,
Friedrichshafen University
Iikka Korhonen
,
BOFIT Finland

Abstract

The objective of this paper is to systematically evaluate the econometric evidence on the effects of the introduction of the euro. We constructed a new hand-collected data set comprising estimation and research design features for almost 3000 estimates of business cycles synchronization from more than 60 studies. Our main findings are that: (1) business cycles correlation coefficients increased from about 0.4 before the euro to approximately 0.6 after. (2) This increase happened in euro (core and periphery) and in non-euro countries. (3) The country for which synchronization has not risen significantly after the euro is Greece. (4) Using meta-regression analysis, we identify key factors; for example, using quarterly data and the Blanchard-Quah decomposition systematically lowers estimated synchronization coefficients. (5) There is evidence of publication bias but it seems to be mostly country-specific.
Discussant(s)
Daniel Berkowitz
,
University of Pittsburgh
Iikka Korhonen
,
BOFIT Finland
Catherine L. Mann
,
OECD
JEL Classifications
  • E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
  • O3 - Innovation; Research and Development; Technological Change; Intellectual Property Rights