The effect of innovation and technological specialization on income inequality
-
DOIhttp://dx.doi.org/10.21511/ppm.16(4).2018.05
-
Article InfoVolume 16 2018, Issue #4, pp. 51-63
- Cited by
- 2057 Views
-
295 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
Using a panel of 28 European Union countries for the period 2003–2014, the authors provide empirical evidence for the relationship between innovation, technological specialization, and income inequality. The results of the fixed effect panel regressions show two important findings. Firstly, the positive link was found between innovation, as measured by patenting activities, and income inequality as measured by Gini index and the top 10% income shares of the richest. Secondly, the authors also found the positive correlation between technological specialization, as measured by the Coefficient of Variances (CV) of Revealed Technological Advantage Index, and income inequality. Overall, the study enriches the previous literature suggesting that innovation may increase the gap of income distribution through the mechanism of Skill-Biased Technical Change (SBTC) and the Schumpeterian view of entrepreneurial rent. More importantly, this study is the first which found that not only the level of innovation does matter to the income distribution, but also how the innovation activities are specialized or diversified. Concentrating the activities into few narrow sectors (i.e., increase technological specialization) may also lead to the increase of income inequality.
- Keywords
-
JEL Classification (Paper profile tab)O30, O31, O33, O34, D31, D63, E25
-
References33
-
Tables4
-
Figures0
-
- Table 1. List of variables
- Table 2. A guide to choosing the fit model in panel data analysis
- Table 3. Results
- Table 4. Findings as compared to previous studies
-
- Acemoglu, D. (1998). Why Do New Technologies Complement Skills: Directed Technical Change and Wage Inequality. Quarterly Journal of Economics, 113, 1055-1089.
- Acemoglu, D., & Autor, D. (2011). Skills, tasks and technologies: Implications for employment and earnings. Handbook of labor economics, 4, 1043-1171.
- Aghion, P., Akcigit, U., Bergeaud, A., Blundell, R., & Hémous, D. (2015). Innovation and top income inequality (No. w21247). National Bureau of Economic Research.
- Aghion, P., & Howitt, P. (1992). A model of growth through creative destruction. Econometrica, 60(2), 323-351.
- Antonelli, C., & Gehringer, A. (2013). Innovation and income inequality (Working Paper No. 201324). University of Turin.
- Atkinson, A. (2013). Reducing income inequality in Europe. IZA Journal of European Labor Studies, 2(12).
- Autor, D., Levy, F., & Murnane, R. (2003). The Skill Content of Recent Technical Change: An Empirical Exploration. Quarterly Journal of Economics, 118, 1279-1334.
- Bartel, A., & Sicherman, N. (1997). Technological change and wages: an inter-industry analysis (No. w5941). National Bureau of Economic Research.
- Cantwell, J., & Vertova, G. (2004). Historical evolution of technological diversification. Research Policy, 33, 511-529.
- Cantwell, J., Gambardella, A., & Granstrand, O. (2004). The economics and management of technological diversification. Routledge.
- Comanor, W., & Scherer, F. (1969). Patent statistics as a measure of technical change. The Journal of Political Economy, 77(3), 392-398.
- Ernst, H. (2001). Patent applications and subsequent changes of performance: evidence form time-series cross-section analyses on the firm level. Research Policy, 30(1), 143-157.
- European Commission (2012). Europe 2020: Europe’s growth strategy.
- Griliches, Z. (1998). Patent statistics as economic indicators: a survey. In Z. Griliches (Ed.), R&D and productivity: the econometric evidence (pp. 287-343). University of Chicago Press.
- Hartmann, D., Guevara, M. R., Jara-Figueroa, C., Aristarán, M., & Hidalgo, C. A. (2017). Linking economic complexity, institutions and income inequality. World Development, 93, 75-93.
- Jones, C., & Kim, J. (2014). A Schumpeterian Model of Top Income Inequality (No. w20637). National Bureau of Economic Research.
- Katz, L. F., & Murphy, K. M. (1992). Changes in relative wages, 1963–1987: Supply and demand factors. The Quarterly Journal of Economics, 107(1), 35-78.
- Ken, Y., Tsai, T., & Ou, Y. (2008). Study of the time lag effect of patent impact on profitability of US pharmaceutical industry from innovation to profit. In PICMET’08–2008 Portland International Conference on Management of Engineering & Technology (pp. 2588-2596). IEEE.
- Kuznets, S. (1955). Economic Growth and Income Inequality. The American Economic Review, 45, 1-28.
- Lee, N. (2011). Are innovative regions more unequal? Evidence from Europe. Environment and Planning C: Government and Policy, 29(1), 2-23.
- Levinson, T. (2015). Trade Specialization & the Occupational Wage Distribution: Evidence from OECD Countries (Working paper). University of California Berkeley.
- Michaels, G., Natraj, A., & Van Reenen, J. (2013). Has ICT Polarized Skill Demand? Evidence from Eleven Countries over 25 years. Review of Economics and Statistics, 96(1), 60-77.
- Osburn, J. (2000). Interindustry wage differentials: patterns and possible sources. Monthly Lab. Rev., 123, 34.
- Park, H. M. (2011). Practical Guides To Panel Data Modeling: A Step-by-step Analysis Using Stata (Tutorial Working Paper). Graduate School of International Relations, International University of Japan.
- Schumpeter, J. A. (1942). Capitalism, socialism and democracy. New York: Harper and Brothers.
- Shim, M., & Yang, H. S. (2017). Interindustry wage differentials, technology adoption, and job polarization. Journal of Economic Behavior & Organization, 146, 141-160.
- Soete, L. (1987). The Impact of Technological Innovation on International Trade Patterns: the Evidence Reconsidered. Research Policy, 16(2-4), 101-130.
- Solow, M. (1957). Technical Change and the Aggregate Production Function. The Review of Economics and Statistics, 39(3), 312-320.
- Stiglitz, J. (2012). The price of inequality: How today’s divided society endangers our future. WW Norton & Company.
- Tselios, V. (2011). Is inequality good for innovation? International Regional Science Review, 34(1), 75-101.
- Violante, G. L. (2008). Skill-biased technical change. New York: Palgrave Macmillan.
- Wilkinson, R., & Pickett, K. (2010). The spirit level: why equality is better for everyone. Penguin UK.
- Zweimüller, J. (2000). Schumpeterian entrepreneurs meet Engel’s law: the impact of inequality on innovation-driven growth. Journal of Economic Growth, 5(2), 185-206.