An Empirical Model of the Sources of Innovation in theU.S. Manufacturing Sector
One Must Look Beyond R&D To Understand Innovation
Jeremy A. Leonard has been Economic Consultant for the Manufacturers Alliance/MAPI Inc., a business research organization located in Arlington, Virginia, since 1997. His work for the Alliance includes research on the cost pressures affecting U.S. manufacturing competitiveness, the impact of information- technology investment on business processes and innovation, the sources of productivity growth, and an annual review of the Canadian economy. Prior to his affiliation with the Alliance, Mr. Leonard held research posts at the Institut de recherche en politiques publiques (Montreal, Quebec) and the Committee for Economic Development (Washington, DC). Mr. Leonard earned an MA summa cum laude in Economics from McGill University in 1996 and a BA magna cum laude in Philosophy from the University of Pennsylvania in 1990.
Cliff Waldman is an economist with the Manufacturers Alliance/MAPI since 2003. He is the author of a number of papers on the Chinese economy as well as of the Quarterly Forecast of U.S. Exports, Global Growth, and the Dollar. He is a participant in the Bloomberg News survey of economists. Previously, he has been President, Waldman Associates; Economist, National Federation for Independent Business (NFIB); Economist, New Jersey Department of Labor. He has a B.A. and an M.A. from Rutgers University.
This paper estimates a simple model of innovation in the U.S. manufacturing sector and derives summary indicators of product and process innovation. Our empirical work reveals that the drivers of innovation extend well beyond business research and development (R&D) spending. Capital investment, cutting-edge scientific output from academic institutions, and the growth of the science and engineering workforce all matter. The dynamic structure of our model suggests that policymakers must look beyond the short-term when developing and evaluating innovation initiatives because there can be lags of several years before inputs are fully realized in innovative performance. But simple simulations conducted with our equations indicate that even a modest increase in key innovation inputs reaps significant benefits.
This article won the 2007 NABE Contributed Paper Award and was presented at the NABE Annual Meeting in San Francisco on September 10, 2007.
JEL Category: O31