Global Economic Watch

Measuring the Effect of Patent Rights on Innovation

05-14-2013 7:56 AM with no comments

At Vox, Alberto Galasso and Mark Schankerman share some findings from their research into the impact of patent rights on innovation.  While once economists thought that protecting patent rights was essential to encourage innovation, that now seems less clear.  In fact, Galasso and Schankerman write that some scaling back of patent rights could spark more innovation, especially in the tech sector:

We find that the loss of patent protection leads to about a 50% increase in subsequent citations to the focal patent, on average. This evidence shows that, at least on average, patents block cumulative innovation. One may be concerned that this is a publicity effect from the court's decision. However, we show that this impact begins only after about two years following the court decision, which is consistent with the onset on follow-on innovation rather than simply being a ‘media effect’ from press coverage associated with the court decision.

We also find that the impact of patent invalidation on subsequent innovation is highly heterogeneous. There is substantial variation across broad technology areas. As illustrated by the figure below, patent invalidation has a large and statistically significant impact on cumulative innovation in the fields of computers and communications, electronics, and medical instruments (including biotechnology). However, we find only a small and statistically insignificant effect in the chemical, pharmaceutical, or mechanical technology field.

We investigate the source of this heterogeneous effect and find that the technology fields where the impact of patent invalidation is strongest are characterised by two features: complex technology (where new products rely on numerous patentable elements) and high fragmentation of patent ownership among diverse firms. This finding is consistent with predictions of the economic theories that emphasise bargaining failure in licensing as the source of blockage.

Read Do patent rights impede follow-on innovation? here.

Posted by Graham Griffith

Happy Birthday to the $20 Bill

05-13-2013 11:13 AM with no comments

The new twenty dollar bill turns 10 years old today.  When the twenty was updated, it represented a significant shift in how US currency looks and feels.  Now the one hundred dollar bill is poised to follow the twenty's lead, by adding new color and material to make it more difficult to forge.  Mark Garrison discussed the importance of the twenty's pioneering look on the Marketplace Tech Report:

Posted by Graham Griffith

IMF Projecting Strong Growth in Sub-Saharan Africa

05-13-2013 6:34 AM with no comments

Developing Asia continues to lead the way in growth rate.  But you might be surprised at what region is second: sub-Saharan Africa. From the IMF:

The IMF’s Regional Economic Outlook for sub-Saharan Africa projects regional economic growth of 5 ½ percent in 2013–2014, compared with 5 percent in 2012. Investment is expected to remain a key driver of growth, while measured activity in 2013 will also be boosted by one-off factors in some countries, including rebound effects from floods in Nigeria and recovery of agriculture in regions previously affected by drought.

Upper middle–income countries are expected to continue grappling with sluggish growth, while activity should gradually normalize in some fragile economies that were negatively affected by political instability.

The region’s downtrend in inflation is set to extend into 2013–14. This forecast is premised on moderating nonoil commodity prices, productive local crops, and inflation-focused monetary policy. Gains made in combating inflation in eastern Africa are expected to be consolidated, while the pace of price rises is projected to slow in countries that experienced inflation flare-ups.

Read Sub-Saharan Africa Builds Momentum in Multi-speed World here.

Posted by Graham Griffith

Not All Capital is Good Capital: Why Regulators Need to Look at Equity When Evaluating Banks

05-10-2013 8:34 AM with no comments

Sometimes financial institutions go under even though it looks like they have plenty of capital, and we all wonder how it happened.  Wharton School professor of finance Richard Herring says that is because we are looking at the wrong numbers.  We should be looking at equity, and he believes new regulatory frameworks proposed at Basel III are a step in the right direction.  But he fears that some policymakers are eager to return to the old definitions of capital and liquidity.  He speaks about the best ways to measure financial stability in this interview with Knowledge@Wharton Steve Sherretta:

Posted by Graham Griffith

Moms: A Driving Force in Mobile Media

05-09-2013 8:18 AM with no comments

In many homes the CEO, CTO, and CFO goes by another three letter title: M O M.  Moms get credit for a lot of things, but they rarely are mentioned as driving forces of innovation and early tech adoption.  At Marketing Profs, Ayaz Nanji shares some data that shows the impact moms have on mobile commerce and social media.  Here's a sample:

-Compared with the general population, 49% more moms have smartphones (81% vs. 54%).
-In a year-over-year comparison, smartphone ownership by moms is up 25% and tablet ownership is up 79%.
-89% of moms with smartphones access Facebook on those phones, and moms are four times more likely to prefer to check social media on their smartphones.
-45% of moms say they are emailing less and communicating more through social media.

Don't forget that moms have the purchasing power in most households.  So social engagement leads to online spending.  Read Moms More Likely to Use Social Media and Mobile, and to Shop Online here.

Posted by Graham Griffith

Quartz: Manicures, Immigrant Workers, and Innovation Driven Growth

05-09-2013 8:00 AM with no comments

In assessing the possible economic benefits of immigration reform, Quartz's Tim Fernholz chooses to look at an industry we've not thought about: manicures.  Fernholz shares some key takeaways from a study on manicure businesses in California, and reveals that it is a thriving business.  And the growth has been driven by Vietnamese immigrant workers:

Fernholz writes:

Why was this possible? Because the immigrants were—wait for it—innovators in the manicure space. They developed the idea of the standalone nail salon that reduced costs, “making a once-exclusive service commonplace.” That meant more nails to paint, not just more workers per nail. The benefits of immigration accrued to people who got their nails painted, to the new immigrants, and even to the remaining non-Vietnamese manicurists.

While nail-care business might not be the perfect stand-in for all low-income work, it does reflect what economists find more broadly: When new immigrants come, it does mean new competition for similarly-skilled local workers, but the new immigrants may also create opportunities that lead to more investment, which maintains wage growth and leads to economic growth. Indeed, with more immigration, average wages seem to rise, not fall.

But the American workers most similar to low-skilled immigrants are uneducated Americans. Economists looked at how immigration affected them between 1990 and 2006, when a lot of unauthorized workers were coming into the country. If they assumed every new immigrant had the exact same abilities as a native worker (which obviously isn’t true, starting on the language front), the effect of immigration on the wages of native workers who didn’t finish high school fell 0.6% over 16 years, while those of everyone else improved. In a more accurate simulation, they found that less-educated natives saw their wages increase by 0.3% due to immigration, and average wages increased 0.5%. That’s not so bad at all.

Read How manicures explain the benefit of low-skilled immigration here.

Posted by Graham Griffith

Gallup Trends: Stock Ownership Among Americans Keeps Dropping

05-08-2013 10:39 AM with no comments

With the Dow Jones Industrial Average topping 15,000 for the first time, it seems like a good time for Americans to invest in the stock market.  And yet fewer Americans are investing in stocks.  Here's a look at the decline in the percentage of Americans investing, from Gallup:

We should be careful not to come to the conclusion that Americans' don't have faith in stocks, or that they don't want to invest.  This is likely more a result of American families, especially middle-aged and middle-income Americans, not having the money to invest that they did in the 90s.  In fact, the biggest drops in ownership are among those groups:

Read more from Gallup here.

Posted by Graham Griffith

Five Companies Where Employees Deserve a Raise

05-08-2013 8:19 AM with no comments

We all think we deserve a raise.  But employees at some companies really deserve a raise.  24/7 Wall Street looked at data on S&P 500 companies and ranked the top 5 companies where employees should be getting paid more.  Jim Jelter explains the findings:

Posted by Graham Griffith

Rise of the Market-Driven Service Sector and Economic Malaise

05-08-2013 8:03 AM with no comments

At Project Syndicate, Harold James, professor of History and International Affairs at Princeton, presents an interesting take on why people in developed economies are showing a lack of confidence in the future, even as the economic situation improves.  The nature of "economic malaise," James writes, "lies in the combination of economic uncertainty and the emergence of radically new forms of social interaction."

The new service economy extends market relations to areas of life in which, previously, informal assistance and guidance within family units prevailed. To the extent that employment and income in the new services can be easily recorded, this change implies an increase in measurable economic wealth and output, because unpaid household services are ignored in GDP calculations.

Experts might thus interpret the macroeconomic consequences as largely positive. But the element of personal dependence is a throwback to the preindustrial world.

The zenith of the old service economy was the court of Louis XIV, where specialist courtiers attended to the Sun King’s every need, even the most intimate (there was a Groom of the King’s Close Stool). In that pre-modern world, private life was extraordinarily public, whereas the social movements of the nineteenth and twentieth centuries dramatically expanded the realm of individual privacy and self-definition.

Today’s new service economy is driven by the resulting uncertainty over identity. We need advice on every aspect of life, provided in a complex world by people whom we think to be experts in ever-narrower and more specialized fields. We can easily monitor that advice and subject it to statistical testing: are our children doing better on tests? Are we more fit? Are we dating more people who share our perceived interests?

Paradoxically, the new technological possibilities are also eliminating privacy. We are moving back to the Sun King’s world, in which everything personal is known, rumored, or whispered. But now, with electronic surveillance, personal dependence has never been more extreme, more humiliating, and more depressing.

This might explain some of the public dissatisfaction captured in so many surveys, even when economic conditions are not dire. Subjectively, modern growth feels problematic, and perhaps even immoral.

Read The New Economy of Fealty here.

Posted by Graham Griffith

American Families' Heavy Student Debt Burden and the Value of Subsidizing Higher Education

05-07-2013 11:25 AM with no comments

When it comes to household debt, mortgages still dominate.  But you might be surprised to learn, as Brookings's Isabel Sawhill notes, that student loan debt is now the second biggest source of debt for U.S. households--ahead of credit card debt and car loans.  Taking on that debt still is not a terrible idea...as long as you graduate. 

Sawhill and Ron Haskins, her co-director at the Brookings Center on Children and Families recently discussed the economic advantages of a college education.  And they raise an interesting question: is the U.S. government's approach to subsidizing higher education paying off?

Posted by Graham Griffith

SF Fed Economic Letter: 'Crises Before and After the Creation of the Fed'

05-07-2013 8:35 AM with no comments

With the Federal Reserve turning 100, San Francisco Fed economists Early Elias and Òscar Jordà take a moment to look at the impact of their parent institution on crisis mitigation.  They point to fewer crises over the last 100 years than in the previous century, and the less severe results of the Great Recession compared to the Panic of 1907 as evidence of the Fed's relative success.  Here is an excerpt from their Economic Letter:

Recessions originating from a financial event were common in the late 19th and early 20th centuries. Many stemmed from banking panics. Figure 1 provides a global historical perspective. We calculate by decade the number of countries that experienced financial crises among a sample of 17 industrialized economies representing more than half of global GDP during the past 140 years (for details, see Jordà, Schularick, and Taylor 2012).

Figure 1 shows a notable downward global trend in the incidence of these highly disruptive events, with the conspicuous exceptions of the Great Depression and the Great Recession of 2007–09. In the United States, the rate of banking crises declined markedly after the 1913 creation of the Federal Reserve System. Other than the Great Depression and Great Recession, the only significant banking crisis of the past century was the savings and loan crisis. By contrast, ten significant banking crises occurred in the 19th century.

The panic of 1907 and the resulting recession are generally credited with providing the catalyst for the creation of the Federal Reserve System. When the Federal Reserve was chartered, the United States had been without a central bank for about 70 years. Congress chartered The First Bank of the United States in 1791 during the Washington presidency, under the guiding hand of Secretary of Treasury Alexander Hamilton. However, its 20-year charter was allowed to expire in 1811. Then, under President Madison, the Second Bank of the United States was created in 1817 for another 20-year period. Once again, the charter was allowed to expire amid President Jackson’s strong opposition to the central bank.

Read the full letter here.

Posted by Graham Griffith

Summers: Takeaways from the Reinhart-Rogoff Error

05-06-2013 10:57 AM with no comments

In the Washington Post, Lawrence Summers weighs in on the now infamous Rogoff-Reinhart coding error.   Summers seems a bit annoyed at both those people who don't see the error as a big deal, and those who are "taking joy" in Rogoff and Reinhart's mistake.  Summers:

Where should these debates settle? As someone who has done a fair amount of econometric research, consumed such research as a policymaker and participated (as an advocate) in debates about fiscal stimulus and austerity, these would be my takeaways:

First, this experience should accelerate the evolution of mores with respect to economic research. Rogoff and Reinhart are rightly regarded as careful, honest scholars. Anyone close to the process of economic research will recognize that data errors like the ones they made are distressingly common. Indeed, the JP Morgan risk models in use when the London “whale” trade was placed appear to have had errors similar to those made by Reinhart and Rogoff. Going forward, authors, journals and commentators need to devote more effort to replicating significant results before broadcasting them widely. More generally, no important policy conclusion should ever be based on a single statistical result. Policy judgments should be based on evidence accumulated from multiple studies done with differing methodological approaches. Even then, there should be a reluctance to accept conclusions from “models” without an intuitive understanding of what drives them. It is understandable that scholars want their findings to inform policy debates. But they have an obligation to discourage and on occasion contradict those who would oversimplify and exaggerate their conclusions.

Second, all participants in policy debates should retain a healthy skepticism about retrospective statistical analysis. Trillions of dollars have been lost and millions of people have become unemployed because the lesson learned from 60 years of experience between 1945 and 2005 was that “American house prices in aggregate always go up.” This was no data problem or misanalysis. It was a data regularity until it wasn’t. The extrapolation from past experience to future outlook is always deeply problematic and needs to be done with great care. In retrospect, it was folly to believe that with data on about 30 countries it was possible to estimate a threshold beyond which debt became dangerous. Even if such a threshold existed, why should it be the same in countries with different currencies, financial systems, cultures, degrees of openness and growth experiences? And there is the chestnut that correlation does not establish causation and so any tendency for high debt and low growth to go together might well reflect the debt accumulation that follows from slow growth.

Read Lessons can be learned from Reinhart-Rogoff error here.

Posted by Graham Griffith

Robert Gordon: 4 Reasons Growth is Slowing

05-06-2013 10:44 AM with no comments

Last week we pointed you to Erik Brynjolfsson's optimistic TedTalk in which he argues that innovation will lead the global economy out of our current period of slow growth.  Robert Gordon agrees that innovation is key to growth.  But in his own TedTalk, he doesn't come across as being quite as optimistic as Brynjolfsson.  Gordon puts the onus on all of us--can we innovate at the rate our predecessors did a century ago?

Posted by Graham Griffith

Unemployment Rate Edges Down .1% as Economy Adds 165,000 Jobs in April

05-03-2013 8:33 AM with no comments

The U.S. economy added 165,000 jobs in April, almost double the number added in March.  And the unemployment rate edged down from 7.6% to 7.5%, according to the Department of Labor. The labor force participation rate remained at 63.3 percent.  Here's a look at the unemployment trends from the Bureau of Labor Statistics:

Here are some of the key data from other areas we like to track in the monthly jobs report:

In April, the number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) increased by 278,000 to 7.9 million, largely offsetting a decrease in March. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.

In April, 2.3 million persons were marginally attached to the labor force, essentially unchanged from a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.

Among the marginally attached, there were 835,000 discouraged workers in April, down by 133,000 from a year earlier. (The data are not seasonally adjusted.) Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The remaining 1.5 million persons marginally attached to the labor force in April had not searched for work in the 4 weeks preceding the survey for reasons such as school attendance or family responsibilities.

Read the full report from the BLS here.

Posted by Graham Griffith

Women in the Workplace and Global Growth

05-02-2013 8:04 AM with no comments

Want to see global GDP grow more rapidly?  Stop focusing on specific economies and industries.  Instead, focus on women, says The Atlantic's Derek Thompson.  Thompson argues that a concerted effort to grant more women access to jobs around the world, especially in emerging market economies, will have a direct impact on global growth.  And that means first giving women "access to better education."

Women drive economic growth -- more than China, more than the Internet, and more than banks. In the U.S., the growth of female employment added 2 percentage points per year to GDP growth. In Europe, working women accounted for 25% of the continent's new wealth in the last 20 years, as I've reported.

But internationally, there are still 1.5 billion women of prime-age who are not in the "formal global economy," according to the Women's Economic Opportunity Index. In the poorest African countries, women's participation rate is high, but many work in the informal economy (selling cheap wares to tourists on the street, for example) with scarce pay. In lower-middle income countries -- those undergoing the early stages of industrialization -- women are half as likely to be working as men, and in many Middle Eastern countries fewer than one in five women are working at all. If there is an opportunity to intervene on the part of international worker, it is hard to find more opportunity than in improving the lot of women in these developing countries.

Read The Most Important Pro-Worker Policy in the World: Education for Women here.

Posted by Graham Griffith