INTELLECTUAL PROPERTY MEETS ECONOMIC GEOGRAPHY: GLOBALIZATION, INEQUALITY, AND INNOVATION STRATEGIES
| Published date | 01 September 2009 |
| Date | 01 September 2009 |
| DOI | http://doi.org/10.1111/j.1467-9485.2009.00496.x |
INTELLECTUAL PROPERTY MEETS
ECONOMIC GEOGRAPHY:
GLOBALIZATION, INEQUALITY, AND
INNOVATION STRATEGIES
Luca Spinesi
n
Abstract
I perform a Schumpeterian analysis of a world economy in which heterogenous
individuals and firms endogenously respond to stronger global competition by
undertaking more education and by spending more in research and development
(R&D). A more globalized economy is predicted to exacerbate wage inequality,
but to spur human capital accumulation within each country. However, despite its
positive level effects on consumption and output, globalization can reduce each
country’s per-capita output growth rate. R&D specialization allows each country to
positively invest in manufacturing, variety proliferation R&D, and product quality
upgrading R&D. The existence of such an R&D specialization – jointly with
domestic size – allows us to explain some different economic performance about
inequality and R&D effort of developed regions, such as the US and the EU
countries.
I Intro ductio n
In a more and more globalized world economy, by looking at regions and
countries at a similar stage of development – such as the EU, the United States
and other developed countries – one can note that traditional sectors – such as
manufacturing – and modern sectors – such as high technological industries –
are all active. Yet, because high technology industries and research and
development (R&D) activity are becoming more and more important sectors for
the economic performance of developed regions,
1
most of them compete for
n
University of Macerata, Department of Economics and Financial Institutions.
1
The Science and Engineering Indicators (SEI, 2006, ch. 6, pp. 9–11) states: ‘During the 24-
year period examined (1980–2003), high-technology production grew at an inflation-adjusted
average annual rate of nearly 6.4%, compared with 2.4% for other manufactured goods . . .
During the 1980s, manufacturing output in the United States and other high-wage countries
shifted resources to produce higher value-added, technology intensive goods . . . In 2003, high-
technology manufactures were estimated to be 34.2% of manufacturing domestic output in the
United States, 13.4% in the EU, and 15.7% in Japan’. Morever, the SEI indicates that R&D
expenditures are highly concentrated in developed countries (SEI, 2006, ch. 4, p. 40):
‘Worldwide R&D performance is concentrated in a few developed nations. In 2000 . . . over
Scottish Journal of Political Economy, Vol. 56, No. 4, September 2009
r2009 The Author
Journal compilation r2009 Scottish Economic Society. Published by Blackwell Publishing Ltd,
9600 Garsington Road, Oxford, OX4 2DQ, UK and 350 Main St, Malden, MA, 02148, USA
508
technological supremacy along both similar and specialized product lines. As an
example, the United States has a leading position along many R&D and high-
technology fields and varieties than other developed countries. Moreover, the
empirical evidence shows that R&D expenditures between industries and
technological fields are far less concentrated in the United States than in many
other developed countries.
2
The always more fierce global competition could
induce R&D firms towards some form of specialization. To fix ideas, the United
States is highly specialized in computer hardware and software, medical and
surgical devices, the Japan is specialized in photocopying and photography,
Ireland is a top supplier of biotechnology and life science products, Germany is
highly specialized in both new products and process in heavy manufacturing
industries.
3
Indeed, the need to face a stronger global competition induces
entrepreneurs to undertake different types of innovative effort, with important
effects on a country’s economic performance. The SEI (2006, ch. 6, p. 13)
underline some elements that could contribute to explain these facts: ‘In each of
the . . . high technology group, the United States maintained strong, if not
leading, positions in the global marketplace. The US market is large and mostly
open, which benefits US high-technology producers in the global market in two
important ways. First, supplying a domestic market with many consumers offers
scale effects for US producers, resulting from potentially large rewards for new
ideas and innovations. Second, the openness of the US market to competing
foreign-made technologies pressures US producers to be more innovative to
maintain domestic market share’.
95% of global R&D is performed in North America, Asia, and Europe . . . The 30 OECD
countries represented 82% of global R&D . .. The G-7 countries (Canada, France, Germany,
Italy, Japan, the United Kingdom, and the United States) performed over 83% of OECD R&D
in 2002. The three largest R&D performers, the United States, Japan, and Germany, account
for over two-thirds of the OECD’s R&D’.
2
To fix ideas, the SEI (2006, ch. 4, p. 49) states: ‘. . . Using internationally comparable data,
in 2002 no one industry accounted for more than 11% of total business R&D in the United
States. This is largely a result of the size of business R&D expenditures in the United States,
which makes it difficult for any one sector to dominate . . . Compared with the United States,
many of other countries . . . display much higher industry and sector concentration. In countries
with less business R&D, high sector concentrations can result for the activities of one or two
large companies’.
3
The SEI (2006, ch. 6, p. 31) states: ‘In 2003, for example, corporate patent activity indicated
US technological strengths in business methods, computer hardware and software, medical and
surgical devices, biotechnology . . . Japan’s continued emphasis on photography, photocopying,
and office and electronics technology . ..’. Moreover, US and Japan cover the 90% of business
R&D in office, accounting, and computing machinery industry (SEI, 2006, ch. 4, p. 49). Again,
‘. . . German inventors continue to develop new products and processes in areas associated with
heavy manufacturing, a field in which they traditionally have maintained a strong presence’.
(SEI, 2006, ch. 6, p. 31); ‘. .. Among European countries, Germany, the United Kingdom, and
France, are the major suppliers of technology to United States. Many smaller countries have
also become important sources for technology products, although they tend to specialize more.
Ireland was the top supplier of biotechnology and life science products to the United States in
2004 . . .’ (SEI, 2006, ch. 6, p. 22); ‘. . . in Finland, where the radio, television, and
communications equipment industry accounted for almost a half of business R&D in 2002’.
(SEI, 2006, ch. 4, p. 49). (Italics is mine).
INTELLECTUAL PROPERTY MEETS ECONOMIC GEOGRAPHY 509
r2009 The Author
Journal compilation r2009 Scottish Economic Society
This paper shows that in a more and more globalized world, entrepreneurs
endogenously decide to undertake different types of innovative effort, with
important effects on a country’s economic performance. An innovative firm
endogenously decides to face global competition either by introducing better
quality product/process along the existing varieties (vertical innovation) or by
starting up with a new product line (horizontal innovation). Moreover, it is
shown that domestic market size can play a role in affecting the economic
performance of countries also in a global marketplace. A Schumpeterian
endogenous growth framework with two symmetric developed countries a
`la
Dinopoulos and Segerstrom (1999) is considered.
4
In each region there exists a
manufacturing sector (traditional sector) that produces a mass of final goods
and services (varieties), and an R&D sector (modern sector) which, through an
uncertain process, can introduce both better quality versions of any existing
variety (vertical innovation), and new product lines (horizontal innovation).
Countries are allowed to be specialized in the R&D activity, at least for a
fraction of the existing mass of product lines. This form of specialization can
arise from first nature exogenous characteristics of each country, and by social
norms, as will be explained below. Countries are assumed to trade in final
products.
Moreover, an endogenous human capital accumulation is considered, with
countries having a similar stage of development also in the education system.
Indeed, the empirical evidence shows that developed countries have a
comparable high level of human capital accumulation and skills, as well as a
comparable stage of development in the education system even if, for example,
the United States have larger percentage of educated workers and higher wage
inequality than many EU countries.
5
It is shown that trade liberalization increases skill premium within each
country, and spurs human capital accumulation through schooling. Yet, in
contrast to Dinopoulos and Segerstrom (1999), a more globalized world can
reduce the per-capita output growth rate in each country, although it positively
affects the consumption level of the world population. Therefore, a more
globalized economy can generate a trade-off between the per-capita output
growth rate and level, even if it increases inequality in both wage and
consumption levels between the unskilled and the skilled labor force. These
results are based on the existence of two types of innovative efforts to face fierce
global competition. In fact, whenever a large mass of R&D firms chooses to
avoid a stronger global R&D competition along the existing varieties by starting
up with a new product line, the dilution of the global market demand along the
higher mass of varieties reduces the average innovation rate, and therefore the
4
Dinopoulos and Segerstrom (1999), and Cozzi (2008) are two excellent analyses of
interactions between symmetric countries with a Schumpeterian growth framework.
5
A recent survey named PISA 2000 by the OECD on the performances in math, science, and
languages of students under 15 years age in Europe and in the United States shows no
significant difference. For empirical evidence on this point see, among others, Foellmi and
Zweimuller (2003).
LUCA SPINESI510
r2009 The Author
Journal compilation r2009 Scottish Economic Society
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