Round table : Policy considerations and conclusionsbruegel.org/wp-content/uploads/2016/10/Presentation-Remy... · Source : Aghion, Askenazy, Berman, Cette and Eymar (2012) Supplementary

Innovation and economic reform in Europe and Japan

Tuesday, 18 October 2016

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Bruegel-Graduate School of Economics, Kobe University Conference

Round table : Policy considerations and conclusions

Rémy Lecat Head of the Structural Policy Analysis Division, Banque de France

This presentation reflects the opinions of the author and does not necessarily express the views of the Banque de France.

Main messages

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• Innovations matter…but also their diffusion

• Innovation policy is necessary…

• …but also the whole institutional environment :

• competition policy,

• labour market,

• education

• appropriate financing.

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• Through which channels does a new technology contributes to growth?

1. Multifactor productivity (MFP) gains in the technology-producing sector

2. Capital deepening in the new technology

3. MFP gains due to the use of the new technology

Innovations matter…but also their diffusion

Innovations matter…but also their diffusion

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Labor productivity in the US: Contributions (yearly growth rate, %)

Source : Byrne, Oliner, Sichel (2013)

0,40,8

0,4

0,3

0,4

0,4

0,3

0,2

0,30,4

0,7

0,30,1

0,9

0,1

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

1974-1995 1995-2004 2004-2012

IT capital deepening Other capital deepeningLabor composition IT-producing sectors MFPOther sector MFP Adjustments

Capital Deepening

MFP

Innovations matter…but also their diffusion

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Ratio of ICT capital stock to GDP in value terms (multiplied by 1000)

Source : Cette, Clerc and Bresson (2015)

ICT capital stock is the sum of communication equipment, software and computers capital stock, all assumed to be equal to 0 in 1950. The euro area does not include Portugal

The role of innovation policy

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• Externalities from R&D vindicate subsidies: direct financing of fundamental research, subsidies to private research.

• Tax credit: the French example • Tax credit on the volume of R&D expenditures: Crédit Impôt

Recherche • 30% of expenses up to 100 Mlns €; 5% above • 5,6 Mds € in 2013

• Banque de France evaluation (Bozio, Irac and Py, 2014): • Diff and diff and matching • Multiplier effect between 0.9 and 1.4 of R&D expenditures • International evidence usually finds also unit multipliers

• Patent policy: • Balance between innovation return and innovation diffusion • Uncertainty due to the existence of multiple protection regime • European Unitary Patent in 2013

7 Source : ANRT (2016)

8 Source : Cette and Lopez (2008)

The role of the institutional context

9 Source : Askenazy, Cahn and Irac (2013)

Competition and innovation The inverted U-curve with different costs of innovation

The need for appropriate financing

10 Source : Aghion, Askenazy, Berman, Cette and Eymar (2012)

Supplementary slides

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A well-educated population is key

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Educational attainment in 1900, 1950 and 2010 (Average duration of schooling for the population aged over 15, in years)

Source : van Leeuwen and van Leewen-Li (2014)

Market rigidities are hampering technology diffusion

Product Market Regulation in 2013

13 Source : OECD

Employment protection legislation of permanent contracts in 2013

(*2014) EPL-permanent worker

14 Source : OECD

Market rigidities are hampering technology diffusion

Innovations matter…but also their diffusion

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Adoption of new technologies: lags and diffusion intensity

Source : Comin and Mestieri (2014)

Technology matters…but it is not the whole story

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Filtered growth rate of different TFP measurements for the US The series have been computed using a HP filter with coefficient 500 (λ = 500) over the period 1890-2010 to address the issue of initial values.

Source : Bergeaud, Cette and Lecat (2015)