On the Relationship between Manufacturing and Innovation: Why Not All Technologies Are Created Equal

Abstract:     
This paper demonstrates the relationship between manufacturing location and innovation trajectories, and why theory should not expect the same relationship for all technologies and industries. I focus on emerging technologies in two polar-opposite industries - automobiles and photonic semiconductors (the latter for telecom, computing, and military applications). In both cases, my results show that when US firms shift production from the US to countries like China, the most advanced technologies that were developed in the U.S. are no longer profitable. Production characteristics are different abroad, and earlier technologies can be more cost-effective in countries like China. While these economics lead firms to abandon producing the most advanced technologies, in only one situation is there a barrier to pursuing innovation in the most advanced technologies back the US. I conclude by introducing a classification system to explain how the relationship between manufacturing and innovation may differ by technology. Within this framework, particularly important may be policies to support manufacturing, technology development, and commercialization activities by early-stage, high-technology, small and medium sized enterprises with immature processes.

Number of Pages in PDF File: 20

Keywords: Manufacturing, Innovation, Technology Trajectories

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