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How High are the Giants' Shoulders: An Empirical Assessment of Knowledge Spillovers and Creative Destruction in a Model of Economic Growth

In: NBER Macroeconomics Annual 1993, Volume 8

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  • Ricardo J. Caballero
  • Adam B. Jaffe

Abstract

The pace of industrial innovation and growth is shaped by many forces that interact in complicated ways. Profit-maximizing firms pursue new ideas to obtain market power, but the pursuit of the same goal by other means that even successful inventions art eventually superseded by others; this known as creative destruction. New ideas not only yield new goods but also enrich the stock of knowledge of society and its potential to produce new ideas. To a great extent this knowledge is non-excludable, making research and inventions the source of powerful spillovers. The extent of spillovers depends on the rate at which new ideas outdate old ones, that is on the endogenous technological obsolescence of ideas, and on the rate at which knowledge diffuses among inventors. In this paper we build a simple model that allows us to organize our search for the empirical strength of the concepts emphasized above. We then use data on patents and patent citations as empirical counterparts of new ideas and knowledge spillovers, respectively, to estimate the model parameters. We find estimates of the annual rate of creative destruction in the range of 2 to 7 percent for the decade of the 1970s, which rates for individual sectors as high as 25 percent. For technological obsolescence, we find an increase over the century from about 3 percent per year to about 12 percent per year in 1990, with a noticeable plateau in the l970s. We find the rate of diffusion of knowledge to be quite rapid, with the mean lag between I and 2 years. Lastly, we find that the potency of spillovers from old ideas to new knowledge generation (as evidenced by patent citation rate) has been declining over the century: the resulting decline in the effective public stock of knowledge available to new inventors is quite consistent with the observed decline in the average private productivity of research inputs

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This chapter was published in:

  • Olivier Jean Blanchard & Stanley Fischer, 1993. "NBER Macroeconomics Annual 1993, Volume 8," NBER Books, National Bureau of Economic Research, Inc, number blan93-1, octubre-d.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 10998.

    Handle: RePEc:nbr:nberch:10998

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    1. Zvi Griliches, 1990. "Patent Statistics as Economic Indicators: A Survey," NBER Working Papers 3301, National Bureau of Economic Research, Inc.
    2. Manuel Trajtenberg & Rebecca Henderson & Adam Jaffe, 1992. "Ivory Tower Versus Corporate Lab: An Empirical Study of Basic Research and Appropriability," NBER Working Papers 4146, National Bureau of Economic Research, Inc.
    3. Mansfield, Edwin, 1985. "How Rapidly Does New Industrial Technology Leak Out?," Journal of Industrial Economics, Wiley Blackwell, vol. 34(2), pages 217-23, December.
    4. Aghion, P. & Howitt, P., 1990. "A Model Of Growth Through Creative Destruction," DELTA Working Papers 90-12, DELTA (Ecole normale supérieure).
    5. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
    6. repec:fth:harver:1473 is not listed on IDEAS
    7. Jaffe, Adam B & Trajtenberg, Manuel & Henderson, Rebecca, 1993. "Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 577-98, August.
    8. Grossman, G.M. & Helpman, E., 1989. "Quality Ledders In The Theory Of Growth," Papers 148, Princeton, Woodrow Wilson School - Public and International Affairs.
    9. Ariel Pakes, 1986. "Patents as Options: Some Estimates of the Value of Holding European Patent Stocks," NBER Working Papers 1340, National Bureau of Economic Research, Inc.
    10. Bronwyn H. Hall & Zvi Griliches & Jerry A. Hausman, 1984. "Patents and R&D: Is There A Lag?," NBER Working Papers 1454, National Bureau of Economic Research, Inc.
    11. Hausman, Jerry & Hall, Bronwyn H & Griliches, Zvi, 1984. "Econometric Models for Count Data with an Application to the Patents-R&D Relationship," Econometrica, Econometric Society, vol. 52(4), pages 909-38, July.
    12. Cohen, Wesley M & Klepper, Steven, 1996. "A Reprise of Size and R&D," Economic Journal, Royal Economic Society, vol. 106(437), pages 925-51, July.
    13. John Bound & Clint Cummins & Zvi Griliches & Bronwyn H. Hall & Adam B. Jaffe, 1982. "Who Does R&D and Who Patents?," NBER Working Papers 0908, National Bureau of Economic Research, Inc.
      • John Bound & Clint Cummins & Zvi Griliches & Bronwyn H. Hall & Adam B. Jaffe, 1984. "Who Does R&D and Who Patents?," NBER Chapters, in: R & D, Patents, and Productivity, pages 21-54 National Bureau of Economic Research, Inc.
    14. Gort, Michael & Klepper, Steven, 1982. "Time Paths in the Diffusion of Product Innovations," Economic Journal, Royal Economic Society, vol. 92(367), pages 630-53, September.
    15. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
    16. Ariel Pakes & Zvi Griliches, 1980. "Patents and R and D at the Firm Level: A First Look," NBER Working Papers 0561, National Bureau of Economic Research, Inc.
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