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11. State Aid, R&D, and the Digital Content of Trade

Author:
Chiara Castelli, Dario Guarascio, Stefan Jestl, and Robert Stehrer
Publication Date:
11-2023
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
We test for the role of state aid as a driver of digital competitiveness at the industry level, focusing on the digital factor content of trade. Results show that state aid may increase digital competitiveness, particularly in R&D-intensive industries and in relation to the export of (digital) capital-intensive goods and services. Interestingly, aggregate state aid appears to be more effective than specific R&D funds in explaining the performance of country-industries in foreign markets.
Topic:
International Trade and Finance, European Union, Trade, Industry, Capital, and Research and Development
Political Geography:
Europe

12. Reimagine: Clean Energy Technology and U.S. Industrial Policy

Author:
Jonas Nahm
Publication Date:
09-2022
Content Type:
Special Report
Institution:
Center for a New American Security (CNAS)
Abstract:
Historically, the United States has been the largest public investor in clean energy research and development (R&D). U.S. research institutions and private firms continue to hold a technological lead in many next-generation technologies that could make the transition away from fossil fuels cheaper and more efficient. Such technologies include next-generation solar photovoltaic technologies, advanced battery chemistries, and software to manage complex energy systems, including those with high penetrations of wind energy. Although the United States was an early leader in clean energy R&D and continues to make major technological advances, it has, over time, fallen behind in the commercialization and manufacturing of the technologies developed domestically. This study reviews U.S. industrial policy for clean energy sectors and argues that other economies have more frequently used proactive industrial policies to support the development of domestic clean energy technology industries. Too often, the United States has not mounted an equivalent industrial policy response. The U.S. government has instead focused more narrowly on funding the invention of new technologies and, intermittently, supported domestic markets for clean energy technologies through federal and state programs. Such policies have included, for instance, federal R&D grants for universities, research institutes, and the private sector, as well as subsidies and regulations to support the growth of clean energy markets at the federal and state level. This U.S. approach to encouraging the growth of domestic clean energy industries has assumed that market failures primarily exist in innovation. Since firms cannot in all cases reap all the gains from investments in the development of new technologies, they are likely to underinvest in innovation, creating a need for governments to supplement private-sector investments in R&D. The U.S. approach to clean energy industrial policy also assumes that investments in R&D will eventually spur the growth of domestic industries if combined with sufficient market demand. Yet U.S. industrial policy has not addressed key institutional shortcomings in segments of clean energy supply chains that are not well supported domestically, particularly in scaling new technologies to mass manufacturing. As a consequence, many technologies developed with public R&D funding failed to reach domestic mass production, as firms were unable to make the investments required to bring the technologies to market domestically. The report develops four recommendations to improve the competitiveness of domestic clean energy industries. First, the United States should establish a state development bank that could fund domestic manufacturing projects in sectors, such as clean energy, that have struggled to raise financing from U.S. financial institutions. The scarcity of capital for clean energy manufacturing has prevented domestic startups from raising the financing required to commercialize and produce their technologies domestically. Second, the U.S. government should ramp up investments in vocational training programs that would meet the workforce needs of growing clean energy manufacturing sectors. Third, the federal government should set stable regulatory requirements and binding targets for clean energy markets as part of a national strategy for competitiveness in clean energy sectors. This would reduce uncertainty injected by the intermittent and fragmented nature of current government support for clean energy sectors and create incentives for the private sector to invest in domestic supply chains for clean energy technologies. Fourth, the United States should limit the use of trade restrictions as industrial policy tools and instead focus on improving the competitiveness of domestic clean energy firms through proactive industrial policies. Trade restrictions can limit the ability of domestic clean energy firms to source materials, parts, and components through global supply chains; may lead to increased prices in ways that can harm domestic clean energy service industries; and obstruct the climate diplomacy needed to meet the goals of the Paris Agreement. At the moment, geopolitical shifts, strategic competition with China, and the ripple effects of the war in Ukraine provide a political opening for the consistent deployment of more ambitious industrial policies. The United States should use this opportunity or risk falling behind other economies, including those in Europe, that have made the development of domestic clean energy supply chains central elements of their response to climate change.
Topic:
Green Technology, Industry, Research and Development, and Energy
Political Geography:
North America and United States of America

13. The portfolio of economic policies needed to fight climate change

Author:
Olivier Blanchard, Christian Gollier, and Jean Tirole
Publication Date:
11-2022
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
Climate change poses an existential threat. The authors argue that carbon pricing and green research and development (R&D) support are good economics, but their implementation can be improved. Even if carbon prices are generalized and given more substance, green R&D is still likely to be smaller than needed. Much more money must be spent on it than is now the case, and this money must be properly allocated in order to have an impact. Moreover, done well, other policies, such as standards, bans, and targeted subsidies, can be good economics. But they have often been incoherent and their implementation is delicate. The authors also argue that domestic and international compensation is key to the acceptability of efficient policies. Finally, although a country’s emissions will not materially alter the course of climate change, individual countries can still show the way ahead: They can develop technologies that can be used by other, poorer, countries. They can provide leadership/momentum on global agreements and on the need to fund climate change policies in developing economies.
Topic:
Climate Change, Economy, Green Technology, Carbon Emissions, and Research and Development
Political Geography:
Global Focus

14. The evolving contribution of R&D, advertising and capital expenditures for US-listed firms’ growth in sales, 1979-2018: A quantile regression analysis

Author:
Joel Rabinovich
Publication Date:
01-2022
Content Type:
Working Paper
Institution:
City Political Economy Research Centre (CITYPERC), University of London
Abstract:
This article presents new insights on the evolving contribution of different types of investments to the growth in sales of US nonfinancial listed firms during the 1979-2018 period. By means of quantile regressions it is observed an increasing contribution over time of intangible investment vis-à-vis a decline in capital expenditure both for high-growth and slow-growth firms. However, the impact of different types of intangible investment differs depending on the kind of firm. Whereas research and development (R&D) has a positive contribution for high-growth firms, only advertising has a positive effect for their slow-growth peers.
Topic:
History, Investment, Research and Development, Firm Growth, Quantile Regression, and Intangibles
Political Geography:
North America and United States of America

15. Do various innovation linkages enhance innovation? International evidence

Author:
Rajeev K. Goel
Publication Date:
03-2022
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
Whereas various drivers of the international innovative activity have been studied in the literature, our understanding of the contributions of different innovation linkages to innovation deserves more attention. Are the different innovation linkages equally complementary to research inputs in fostering innovation? This paper addresses the contributions of different innovation linkages to innovation, across two different measures of innovation. We find that a broader index of innovation linkages shows positive and significant spillovers on innovation, while joint ventures and university-industry collaborations fail to exert a significant influence. These spillovers are reinforced by the positive and expected impacts of R&D spending. In other results, greater venture capital investments boost innovation in most cases, while more FDI boosts one type of innovation output. These findings are uniquely shown to be sensitive across least- and most innovative nations when a quantile regression is employed. Implications for technology policy are discussed.
Topic:
Development, Science and Technology, Innovation, and Research and Development
Political Geography:
Global Focus