Understanding the UK's poor technological performance

In this Briefing Note, we document and disentangle the trends in UK research and development (R&D) over the period 1981-2000, and compare the UK's performance with that of the USA

Product market reforms, labour market institutions and unemployment

We analyze the impact of product market competition on unemployment and wages, and how this depends on labour market institutions. We use differential changes in regulations across OECD countries over the 1980s and 1990s to identify the effects of competition. We find that increased product market competition reduces unemployment, and that it does so more in countries with labour market institutions that increase worker bargaining power. The theoretical intuition is that both firms with market power and unions with bargaining power are constrained in their behaviour by the elasticity of demand in the product market. We also find that the effect of increased competition on real wages is beneficial to workers, but less so when they have high bargaining power. Intuitively, real wages increase through a drop in the general price level, but workers with bargaining power lose out somewhat from a reduction in the rents that they had previously captured

Product market reform and innovation in the EU

European Union countries have implemented widespread reforms to productmarkets in order to stimulate competition, innovation and economic growth. We provideempirical evidence that the reforms carried out under the EU Single Market Programme(SMP) were associated with increased product market competition, as measured by areduction in average profitability, and with a subsequent increase in innovation intensityand productivity growth for manufacturing sectors. In our analysis we exploit exogenousvariation in the expected impact of the SMP across countries and industries to identify theeffects of reforms on average profitability, and the effects of profitability on innovationand productivity growth. European Union countries have implemented widespread reforms to productmarkets in order to stimulate competition, innovation and economic growth. We provideempirical evidence that the reforms carried out under the EU Single Market Programme(SMP) were associated with increased product market competition, as measured by areduction in average profitability, and with a subsequent increase in innovation intensityand productivity growth for manufacturing sectors. In our analysis we exploit exogenousvariation in the expected impact of the SMP across countries and industries to identify theeffects of reforms on average profitability, and the effects of profitability on innovationand productivity growth

Product market reform and innovation in the EU

European Union countries have implemented widespread reforms to product markets in order to stimulate competition, innovation and economic growth. We provide empirical evidence that the reforms carried out under the EU Single Market Programme (SMP) were associated with increased product market competition, as measured by a reduction in average profitability, and with a subsequent increase in innovation intensity and productivity growth for manufacturing sectors. In our analysis we exploit exogenous variation in the expected impact of the SMP across countries and industries to identify the effects of reforms on average profitability, and the effects of profitability on innovation and productivity growth.

The link between product market reform, innovation and EU macroeconomic performance

This report analyses the impact of product market reforms, in the form of the EU Single Market Programme, on the extent of product market competition and the subsequent effects of competition on innovation activity and productivity growth.The report first summarises the main messages from the existing theoretical and empirical literature on the relationship between competition and innovation and uses this to inform the subsequent empirical analysis. The theoretical literature on competition and growth emphasises the importance of economic profits, or rents, in providing incentives for firms to innovate to compete for market position or in order to enter new markets. Increased competition may increase incentives for firms to increase efficiency or to innovate in order to protect or enhance their market position. However, competition may reduce the rewards to innovation or entry into a market and thus discourage these activities.product market reform, macroeconomic performance, Single Market Program, innovation activity, productivity growth, Griffith, Harrison, Simpson

Product market reforms, labour market institutions and unemployment

We analyze the impact of product market competition on unemployment and wages, and how this depends on labour market institutions. We use differential changes in regulations across OECD countries over the 1980s and 1990s to identify the effects of competition. We find that increased product market competition reduces unemployment, and that it does so more in countries with labour market institutions that increase worker bargaining power. The theoretical intuition is that both firms with market power and unions with bargaining power are constrained in their behaviour by the elasticity of demand in the product market. We also find that the effect of increased competition on real wages is beneficial to workers, but less so when they have high bargaining power. Intuitively, real wages increase through a drop in the general price level, but workers with bargaining power lose out somewhat from a reduction in the rents that they had previously captured.Product market regulation; competition; wage bargaining; unemployment.

How special is the special relationship? Using the impact of US R&D spillovers on UK firms as a test of technology sourcing

How much does US-based R&D benefit other countries and through what mechanisms? We test the 'technology sourcing' hypothesis that foreign research labs located on US soil tap into US R&D spillovers and improve home country productivity. Using panels of UK and US firms matched to patent data we show that UK firms who had established a high proportion of US-based inventors by 1990 benefited disproportionately from the growth of the US R&D stock over the next 10 years. We estimate that UK firmsÒ Total Factor Productivity would have been at least 5% lower in 2000 (about $14bn) in the absence of the US R&D growth in the 1990s. We also find that technology sourcing is more important for countries and industries who have 'most to learn'. Within the UK, the benefits of technology sourcing were larger in industries whose TFP gap with the US was greater. Between countries, the growth of the UK R&D stock did not appear to have a major benefit for US firms who located R&D labs in the UK. The 'special relationship' between the UK and the US appears distinctly asymmetric.international spillovers; technology sourcing; productivity;

How Special is the Special Relationship? Using the Impact of US R&D Spillovers on UK Firms as a Test of Technology Sourcing

How much does US-based R&D benefit other countries and through what mechanisms? We test the "technologysourcing" hypothesis that foreign research labs located on US soil tap into US R&D spillovers and improvehome country productivity. Using panels of UK and US firms matched to patent data we show that UK firmswho had established a high proportion of US-based inventors by 1990 benefited disproportionately from thegrowth of the US R&D stock over the next 10 years. We estimate that UK firms' Total Factor Productivitywould have been at least 5% lower in 2000 (about $14bn) in the absence of the US R&D growth in the 1990s.We also find that technology sourcing is more important for countries and industries who have "most to learn".Within the UK, the benefits of technology sourcing were larger in industries whose TFP gap with the US wasgreater. Between countries, the growth of the UK R&D stock did not appear to have a major benefit for USfirms who located R&D labs in the UK. The "special relationship" between the UK and the US appearsdistinctly asymmetric.international spillovers, technology sourcing, productivity, patents, R&D

In brief: boffins in the USA: the boost to UK productivity.

The US innovation boom since 1990 has had major benefits for the UK economy. According to new research by CEP's director John Van Reenen and colleagues, without the growth in US spending on research and development (R&D) in the 1990s, UK productivity would have been about 5% lower in 2000.