Kauffman Research Symposium: The Role of Innovation and Entrepreneurship in Economic Growth
Bottom Line: In this January 2020 research symposium sponsored by the Kauffman Foundation, numerous papers regarding the role of entrepreneurship and economic growth were presented. The papers explored entrepreneurship's role in sectors across the economy -- from housing to manufacturing to retail -- and argue that more is needed to increase prosperity.
Over the last two decades, the US' manufacturing has slightly grown, yet the US' manufacturing share has declined due to China's exponential rise. Likewise, in contrast to net employment in the US economy, which has increased, net employment in manufacturing (while growing slightly since 2010) is significantly lower than in the 1980s. The US' relatively high R&D spending on manufacturing (66% of industrial R&D) and comparatively low manufacturing value added (14%) is at least in part due to the globalization of manufacturing facilities in the last decade.
This study examines the size of the welfare benefits of new digitization-enabled new products. Traditionally, the benefits of digitization have been evaluated through a “long tail” lens, in which digitization’s benefit is infinite shelf space, so consumers have access to all existing products. Because product success is unpredictable, an increase in the number of new products can bring forth a mix of products, including valuable products that otherwise would not have come to market. The welfare benefit of new creative products is substantial. The research also examines the labor-market consequences of digitization for creators.
Consistent with the notion of "retail apocalypse," the researchers begin by confirming a sizable decline in the number of establishments in the retail sector. They further document a strong increase in e-commerce sales from non-store retailers, and find suggestive evidence that sectors experiencing greater penetration of e-commerce exhibited larger relative decline in sales, number of physical stores, employment, and total payroll. Yet the researchers find that changes in other retail activity in a county is positively correlated with increases in the presence of Big Box stores.
The researchers examine data on US patents to document four trends in IT patenting. First, they show that firm-level concentration in IT patenting is increasing over time. Second, they show that geographic concentration in IT patenting is increasing over time. Third, the researchers show that most technology classes experienced a decline in new patenters. Fourth, there is increased geographic concentration of new IT patenters.
Based on R&D spending and patent statistics, housing does not appear to be a very innovative sector. But in the last two decades, there has been a significant increase in the amount of investment going to real estate technology companies. Recent internet real estate innovations have likely increased the efficiency of housing markets, leading to higher quality matches between buyers and sellers, and more efficient utilization of space.
Innovation in the energy sector often proceeds slowly, and entrepreneurial start-up firms have historically played a minor role. Yet this study argues that this trend may be changing. Energy markets are going through a period of profound structural change. The rise of hydrofracturing lowered fossil fuel prices so much that natural gas is now the primary fuel for electricity generation in the US. The researchers document the evolving roles of innovation and entrepreneurship in the energy sector.
The researchers draw from prior literature and a range of statistics to describe economic, entrepreneurial, and innovative activities in the transportation sector. Analysis of recent trends suggest that warehousing is playing an increasingly important role. The researchers argue for more research on the role of warehousing in particular. They also review several new technologies, including autonomous vehicles, drones, and robots, that are starting to affect transportation and warehousing entrepreneurship.
The researchers use existing empirical evidence to explore the impact on innovation of three sets of policies: those aimed at improving access to early, basic education, those that increase investments in research universities and improve access to them, and those that give potential innovators the type of education that is most useful to them. The researchers conclude that all three have the potential of mending a “leaky pipeline” that allows talented individuals to become innovators, regardless of their background.
US agriculture was transformed during the 20th century by waves of innovation with mechanical, biological, chemical, and information technologies. Compared with a few decades ago, today's agriculture is much less labor-intensive and farms are much larger and more specialized, supplying a much-evolved market for farm products. Yet US investments in agricultural R&D are stalling even though meta-evidence shows that past US investments in agricultural R&D have yielded very favorable returns.
Read an overview of the symposium HERE.