5 POLICY DIMENSIONS ON INNOVATION AND INCLUSIVE

GROWTH:BASED ON 10 YEARS OF RESEARCH

Queens International Institute20 August 2019

Caroline PaunovHead of Secretariat for the Working Party on Innovation

and Technology Policy and Senior Economist

5 DIMENSIONS LINKING INNOVATION AND INCLUSIVE GROWTH

1. Increasing the pie & trade-offs2. Steering innovation to societal

challenges 3. Widening engagement in innovation 4. Innovation disparities are

substantial5. The digital economy raises new

inclusion challenges

1. INCREASING THE PIE AND TRADE-OFFS

1. About increasing the pie & trade-offs

Objective of growth-enhancing policies incl. innovation: Increase the pie ex ante

Objective of social policies incl. redistribution, social services: See about adjusting how to share the pie ex post

Equality at any price? Beware of trade-offs between pie increase & equality !!

1. About increasing the pie & trade-offs

2. STEERING INNOVATION TO SOCIETAL CHALLENGES

7

Examples of innovations for lower-income groups in developing countries

Mobile money

3D printing from waste

2000$ car“Assembly line” cataract

operations

Fuel from waste

Off the grid electricity

Pedal washing machine

2. Steering innovation to address societal challenges

• Markets benefit from a push for innovation to address more effectively health, education, sustainability

• Why not just leave it to the market?1. Public goods / missing market phenomenon 2. Public sector involvement3. Coordination challenges requiring collective

efforts 4. Market size constraints -> minorities /

development

2. Steering innovation to societal challenges

3. WIDENING ENGAGEMENT IN INNOVATION

Policies that help ensure disadvantaged groups of

society have opportunities to participate in innovation

activities

Rationale: Removing costs associated with discrimination

(probably often statistical / stereotypes) & inclusiveness

3. Widening engagement in innovation

Source: Planes-Satorra, S. and C. Paunov (2017), Inclusive innovation policies Lessons from international case studies, OECD Science, Technology and Industry Working Papers, 2017/02

3. Widening engagement in innovation

Instruments used for integration

Building skills for innovation• Investment in scientific literacy (STEM skills) (e.g. China’s National

Action Plan for Scientific Literacy)• Entrepreneurship education and training• Grants to fund research projects led by researchers from disadvantaged

groups (e.g. Thuthuka programme – South Africa)

Addressing stereotypes• Awareness raising campaigns (incl. role models), e.g. to:

o encourage women to take up (research) careers in STEM (e.g. Japan)o incentivize women entrepreneurship (e.g. Enterprise Ireland)

Facilitating the integration of disadvantaged groups• Funds to research institutions to develop and implement plans to improve

the research environment for women (e.g. Japan)

4. INNOVATION DISPARITIES ARE SUBSTANTIAL

4. Innovation disparities are substantial

4. Innovation disparities are substantial

P. Aghion and M. Trajtenberg at our 2016Symposium on Technology, Innovation andInclusive Growth

It is not just a development issue.

Business expenditure on R&D (BERD) as % of GDP, TL2 regions

5. THE DIGITAL ECONOMY RAISES NEW INCLUSION

CHALLENGES

5. The digital economy raises new challenges of structural exclusion

Markups increased in the United States

Source: Eeckhout and de Locker (2018), The Rise of Market Power and the Macroeconomic Implications

010203040506070

NORNZL FIN

SWEUSA

GBRDNK

NLD CAN BEL IRLEST

KOR ISROECD

AUTCZE

FRAPOL ITA

ESPSVN

CHLDEU JP

NGRC

TURLTU

SVK

High risk of automation Risk of significant change

Source: OECD calculations based on the Survey of Adult Skills (PIAAC) (2012); and Nedelkoska, L. and G. Quintini (2018), "Automation, skills use and training", OECD Social, Employment and Migration Working Papers, No. 202, , https://doi.org/10.1787/2e2f4eea-en

Jobs at risk of automation in OECD countries

Digital technologies are changing the nature & characteristics of innovation

Digital innovation is changing market structures & dynamics

Market concentration• Expanding digital production at little cost

(scale without mass) favours dominantplayers

• Scarcity of skills to exploit data leads to concentration in few hotspots

Market entry & competition• Data access lowers cost of market

entry• Platforms can facilitate

entrepreneurship

Source: OECD (2019), Digital Innovation: Seizing Policy Opportunities, OECD Publishing, Paris. https://doi.org/10.1787/a298dc87-en

Digital technology patents are more concentrated compared to other tech fields

Dependent variable:

(1) (2) (3) (4) (5) (6) (7) (8)Digitalisation index - Broadband (k,c,t-1) 0.851*** 0.643** 1.651*** 1.658*** 1.675*** 1.720*** 1.669*** 1.728***

(0.290) (0.304) (0.253) (0.253) (0.252) (0.256) (0.253) (0.260)Digitalisation index - Broadband (k,c,t-1) * Rank (c,1995) 0.339***

(0.053)Digitalisation index - Broadband (k,c,t-1) * Rank (c,k,1995) 0.015***

(0.002)Digitalisation index - Broadband (t,c,t-1) * Top 10% (c,1995) 0.491***

(0.181)Digitalisation index - Broadband (t,c,t-1) * Top 10% (c,k,1995) 0.027**

(0.011)Digitalisation index - Broadband (k,c,t-1) * Top 5% (c,1995) 0.290

(0.234)Digitalisation index - Broadband (k,c,t-1) * Top 5% (c,k,1995) 0.022*

(0.013)Digitalisation index - Broadband (k,c,t-1) * Top 1% (c,1995) 0.601

(0.380)Digitalisation index - Broadband (k,c,t-1) * Top 1% (c,k,1995) 0.018

(0.019)City fixed effects Yes Yes Yes Yes Yes Yes Yes YesTechnology-year fixed effects Yes Yes Yes Yes Yes Yes Yes YesCountry-year fixed effects Yes Yes Yes Yes Yes Yes Yes YesNumber of observations 157 169 157 169 157 169 157 169 157 169 157 169 157 169 157 169R-squared 0.55 0.55 0.55 0.55 0.55 0.55 0.55 0.55

Number of patent applications per city and technology fieldRanking (inverse) Top 10% Top 5% Top 1%

Source: Paunov et al. (2019), How has the geographic inclusiveness of innovation evolved in the digital age?, OECD Science, Technology and Industry Policy Papers (forthcoming in September 2019)

Digital technologies positively relate to patenting shares of top cities

Dependent variable:

(1) (2) (3) (4) (5) (6) (7) (8)Digitalisation index - Broadband (k,c,t-1) 0.851*** 0.643** 1.651*** 1.658*** 1.675*** 1.720*** 1.669*** 1.728***

(0.290) (0.304) (0.253) (0.253) (0.252) (0.256) (0.253) (0.260)Digitalisation index - Broadband (k,c,t-1) * Rank (c,1995) 0.339***

(0.053)Digitalisation index - Broadband (k,c,t-1) * Rank (c,k,1995) 0.015***

(0.002)Digitalisation index - Broadband (t,c,t-1) * Top 10% (c,1995) 0.491***

(0.181)Digitalisation index - Broadband (t,c,t-1) * Top 10% (c,k,1995) 0.027**

(0.011)Digitalisation index - Broadband (k,c,t-1) * Top 5% (c,1995) 0.290

(0.234)Digitalisation index - Broadband (k,c,t-1) * Top 5% (c,k,1995) 0.022*

(0.013)Digitalisation index - Broadband (k,c,t-1) * Top 1% (c,1995) 0.601

(0.380)Digitalisation index - Broadband (k,c,t-1) * Top 1% (c,k,1995) 0.018

(0.019)City fixed effects Yes Yes Yes Yes Yes Yes Yes YesTechnology-year fixed effects Yes Yes Yes Yes Yes Yes Yes YesCountry-year fixed effects Yes Yes Yes Yes Yes Yes Yes YesNumber of observations 157 169 157 169 157 169 157 169 157 169 157 169 157 169 157 169R-squared 0.55 0.55 0.55 0.55 0.55 0.55 0.55 0.55

Number of patent applications per city and technology fieldRanking (inverse) Top 10% Top 5% Top 1%

Source: Paunov et al. (2019), How has the geographic inclusiveness of innovation evolved in the digital age?, OECD Science, Technology and Industry Policy Papers (forthcoming in September 2019)

Top cities benefit even more

Dependent variable:

(1) (2) (3) (4) (5) (6) (7) (8)Digitalisation index - Broadband (k,c,t-1) 0.851*** 0.643** 1.651*** 1.658*** 1.675*** 1.720*** 1.669*** 1.728***

(0.290) (0.304) (0.253) (0.253) (0.252) (0.256) (0.253) (0.260)Digitalisation index - Broadband (k,c,t-1) * Rank (c,1995) 0.339***

(0.053)Digitalisation index - Broadband (k,c,t-1) * Rank (c,k,1995) 0.015***

(0.002)Digitalisation index - Broadband (t,c,t-1) * Top 10% (c,1995) 0.491***

(0.181)Digitalisation index - Broadband (t,c,t-1) * Top 10% (c,k,1995) 0.027**

(0.011)Digitalisation index - Broadband (k,c,t-1) * Top 5% (c,1995) 0.290

(0.234)Digitalisation index - Broadband (k,c,t-1) * Top 5% (c,k,1995) 0.022*

(0.013)Digitalisation index - Broadband (k,c,t-1) * Top 1% (c,1995) 0.601

(0.380)Digitalisation index - Broadband (k,c,t-1) * Top 1% (c,k,1995) 0.018

(0.019)City fixed effects Yes Yes Yes Yes Yes Yes Yes YesTechnology-year fixed effects Yes Yes Yes Yes Yes Yes Yes YesCountry-year fixed effects Yes Yes Yes Yes Yes Yes Yes YesNumber of observations 157 169 157 169 157 169 157 169 157 169 157 169 157 169 157 169R-squared 0.55 0.55 0.55 0.55 0.55 0.55 0.55 0.55

Number of patent applications per city and technology fieldRanking (inverse) Top 10% Top 5% Top 1%

Source: Paunov et al. (2019), How has the geographic inclusiveness of innovation evolved in the digital age?, OECD Science, Technology and Industry Policy Papers (forthcoming in September 2019)

5 DIMENSIONS LINKING INNOVATION AND INCLUSIVE GROWTH

1. Increasing the pie & trade-offs2. Steering innovation to societal

challenges 3. Widening engagement in innovation 4. Innovation disparities are

substantial5. The digital economy raises new

inclusion challenges

Inclusive Innovation

- Paunov, C. (2013), "Innovation and Inclusive Development: A Discussion of the Main Policy Issues", OECD Science, Technology and Industry Working Papers, No. 2013/01, OECD Publishing, Paris, https://doi.org/10.1787/5k4dd1rvsnjj-en.- OECD (2015), Innovation Policies for Inclusive Growth, OECD Publishing, Paris, https://doi.org/10.1787/9789264229488-en.- OECD (2017), Making Innovation Benefit All: Policies for Inclusive Growth, OECD Publishing, Paris. - Symposium on Technology, Innovation and Inclusive Growth, http://www.oecd.org/science/inno/knowledge-inno-inclusive-dev-2016.htm- Symposium on Innovation and Inclusive Growth, http://www.oecd.org/sti/inno/knowledge-inno-inclusive-dev.htm

Project website:

https://oe.cd/2xw

The report and all project materials on digital innovation

Source:OECD (2019), Digital Innovation: Seizing Policy Opportunities, OECD Publishing, Paris.https://doi.org/10.1787/a298dc87-en

Policy papers on digital innovation

- Guellec, D. and C. Paunov (2018), "Innovation policies in the digital age", OECD Science, Technology and Industry Policy Papers, No. 59, OECD Publishing, Paris,https://doi.org/10.1787/eadd1094-en.

- Paunov, C. and S. Planes-Satorra (2019), " How are digital technologies changing innovation? Evidence from agriculture, the automotive industry and retail", OECD Science, Technology and Industry Policy Papers, OECD Publishing, Paris

- Planes-Satorra, S. and C. Paunov (2019), "The digital innovation landscape in 2019", OECD Science, Technology and Industry Policy Papers, OECD Publishing, Paris, https://doi.org/10.1787/6171f649-en

- Paunov, C., El-Mallakh, N., Guellec, D., Planes-Satorra, S. and L. Nüse (2019), How has the geographic inclusiveness of innovation evolved in the digital age?, OECD Science, Technology and Industry Policy Papers (forthcoming: Sept. 2019)