Chapter 2 Globalization and Innovation in Advanced Economies

Abstract

Purpose – This chapter analyzes the effects that the international integration of product markets induced by globalization exerts on the direction of technological change at the industry level.

Methodology/approach – In order to do so it elaborates an interpretative framework that complements the classical inducement hypotheses with the Schumpeterian literature and the localized technological change approach, putting forward the hypothesis that technological change is biased by the dynamics of both factor and product markets. We argue and show that not only the changing levels of input costs but also the changing prevalence of product and process innovations affect the direction of technological change: specifically when product innovations prevail technological change is skill-biased, while when process innovations play a major role innovation is capital intensive.

Findings – Following this perspective we analyze the interindustrial variance of the output elasticities of labor of the main advanced economies in recent years and claim that such heterogeneity can be understood as the result of differentiated innovative reactions of firms to changes induced by the globalization of the markets: fast-growing sectors innovate mainly through (skilled) labor-augmenting technological change, while mature industries rely more on capital-enhancing innovations. The empirical evidence supports our hypotheses and shows that the variance of the output elasticity of labor in a panel data estimate across 17 manufacturing sectors in 16 OECD countries from 1995 to 2006, is significantly and positively associated with the rates of growth of employment, wage levels and their rates of increase, and R&D intensity.

Originality/value of paper – By investigating the variance of output elasticities at the industry level the chapter provides new insights within the literature focused on the bias of technological change.

Citation

Antonelli, C. and Fassio, C. (2011), "Chapter 2 Globalization and Innovation in Advanced Economies", Libecap, G.D. and Hoskinson, S. (Ed.) Entrepreneurship and Global Competitiveness in Regional Economies: Determinants and Policy Implications (Advances in the Study of Entrepreneurship, Innovation and Economic Growth, Vol. 22), Emerald Group Publishing Limited, Leeds, pp. 21-46. https://doi.org/10.1108/S1048-4736(2011)0000022005