Controlling Funds Allocation for the War: The Experience of Japan in the Late 1930s

This study empirically investigates the role of face-to-face contact in innovation, by exploiting the Spanish flu pandemic in Japan from 1918 to 1921, which prohibitively increased the cost of face-to-face contact between inventors. By using unique patent bibliographic data for this period, we estimate the pandemic’s impact on innovation for face-to-face contact intensive technologies by the Difference-in-Differences (DID) approach. The estimation results show that during the pandemic, patent applications for face-to-face contact intensive technologies significantly decreased, and did not fully recover even after the pandemic ended. We also find that the negative impact is driven by a decrease in new entries into patent applications, that is, patent applications by the inventors who applied for patents for the first time. We further find that productive inventors were experienced co-inventions during their early careers. These results suggest that the decrease in face-to-face contacts with colleagues and seniors in the preliminary stages of inventors’ careers reduced the opportunity to nurture new inventors.