Innovation, Patents and Cash Flow
CEPR Discussion Paper Series 1432
Posted: 17 Sep 1996
Date Written: July 1996
In this paper we estimate a dynamically recursive model of the relationship between innovations, patents and cash flow. Our results suggest that: 1) lagged patents are significant predictors of current innovation, but lagged innovations do not affect the conditional expectation of current patents; 2) patents are influenced primarily by advances in the science base as measured by R & D intensity and spillovers, while innovations are more sensitive to cash flow and demand shocks; 3) innovations have a greater impact on cash flow than patents; and 4) both patents and innovations show strong history dependence. We use our model to simulate the effects of spending $500m on any one of three different types of traditional government policies designed to support innovative activities of firms (non-discretionary R & D subsidies, cuts in corporate tax and stimulation of macroeconomic demand growth). These simulations suggest that the role for state intervention in promoting technological advance is decidedly limited.
JEL Classification: N2, O3, O0
Suggested Citation: Suggested Citation