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Going Soft: How the Rise of Software-Based Innovation Led to the Decline of Japan's IT Industry and the Resurgence of Silicon Valley

Author

Listed:
  • Ashish Arora

    (Fuqua School of Business, Duke University, and NBER)

  • Lee G. Branstetter

    (Carnegie Mellon University and NBER)

  • Matej Drev

    (Carnegie Mellon University)

Abstract

This paper documents a systematic shift in the nature of innovation in information technology (IT) toward increasing dependence on software. Using a broad panel of U.S. and Japanese publicly listed IT firms in the period 1983 to 2004, we show that this change in the nature of IT innovation had differential effects on the performance of the IT industries in the United States and Japan, resulting in U.S. firms increasingly outperforming their Japanese counterparts, particularly in more software-intensive sectors. We provide suggestive evidence that human resource constraints played a role in preventing Japanese firms from adapting to the documented shift in IT innovation. © 2013 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Ashish Arora & Lee G. Branstetter & Matej Drev, 2013. "Going Soft: How the Rise of Software-Based Innovation Led to the Decline of Japan's IT Industry and the Resurgence of Silicon Valley," The Review of Economics and Statistics, MIT Press, vol. 95(3), pages 757-775, July.
    • Handle: RePEc:tpr:restat:v:95:y:2013:i:3:p:757-775
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    Keywords

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    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L63 - Industrial Organization - - Industry Studies: Manufacturing - - - Microelectronics; Computers; Communications Equipment
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers

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