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Should We Like Chinese and Indian R&D?

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August 26, 2005

Should We Like Chinese and Indian R&D?

Michael Mandel

There's been an awful lot of stories about how the U.S. advantage in innovation is eroding, especially as more R&D is being done in India, China, and other Asian countries. Just recently a Korean lab announced the first dog clone.

Pros and cons. On the plus side, ideas travel easily across national borders, so research done elsewhere quickly spreads back to the U.S. On the minus side, the innovators often get a lead, which translates into more innovation and faster economic growth.

A new paper from economists Laura Bottazzi and Giovanni Peri estimates the size of these two effects (though they don't quite put it this way). They write:

A 1% positive shock to the log of R&D in US increases the knowledge creation in other countries by an average of 0.35% within ten years. The same shock generates a maximum 6% effect on the US stock of knowledge after five to ten years and then declines slightly.

Let's translate this into English. An increase in U.S. R&D does have a substantial positive effect on other countries, but the eventual benefit to the U.S. is perhaps 20 times larger.

Whoa! I know that this result depends on lots of assumptions, but this really takes me aback. Presumably the results from investment in R&D in Asia would be similar...that the innovating country would benefit a lot more than the U.S.

I've been a big optimist about the U.S. gain from innovation in China, India, and Asia more broadly...but maybe I've been too optimistic. I've got to think about this.

09:08 AM


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Tracked on August 29, 2005 08:09 AM

Being an Indian, I would like to be optimistic too. But I guess one constraining factor in some Asian countries might be the capacity of institutions - businesses, academia and others - to take the benefits of R&D forward.

Posted by: Ramnath at August 26, 2005 10:08 PM

Over the last five months, I have gotten this drift from national business magazines.

Korean companies making cell phone add their own product creations under other brand names, Korean bio-science (stem cells), will end up in medical treatment world wide. U.S. universities, have 60% foreign students studying engineering and sciences, and the growing numbers of engineering and scientists in China, and India, let you know the truck is passing.

They go on, the good side is that their product innovations are not hid under their bed, everyone wants to sell in the world market, and this will gives us lower retail prices, a deflator against commodity price inflation. Something we will need to deal with not compete against, is what innovations we pick and chose from these new world markets.

I think more is happening, their cultural input in innovation, and their need to produce lower cost products for their domestic markets, will add a true deflator against price inflation.

That our market are being moved from the center of creativity, is something we will need to deal with not compete against, by investing in our own local service employment.

Posted by: Mike Reardon at August 27, 2005 01:55 AM

I think the basic reason why lot of production and new innovation is happening in Asia is the creation of Large size and numbers in markets due to constant growth in past decades.

Industrial revolution was needed and is happening in large scale. Consumption is linked to industrialization and better the industrialization in a mass market lower will be the cost of production and better exports.

Innovating and growing is normal cycle for any Industrial house and this will keep happening. I think asian countries are just strugling for thier pie of the world that they deserve. The real competition has many decades to come when development standards will match with each other.

There has been a great gap and that is getting filled for the good.

Developed world companies will normally acquire interests in asian concerns and may run the show from asia for very long. Slowly more integration will happen and revenue models of various countries will change.

Production will happen in few countries, some countries will enjoy large tourism and related industries. More travel, lesser trade restrictions will allow creation of newer more open and integrated world.

Salaries in developed world have to decrease and developing world has to increase to meet and then grow together again. When developing world can give you cheaper products and services, won't lower salaries will suffice their needs at least to compete.

I also think that developed countries will soon have lot of advantages. Developed world is more capable of innovations and for any innovation they can now serve much larger international market then before. Specially if they can understand the requirements of developing world and innovate they can win the battle. More broad and stable platform for innovation is currently getting created. This advantage shall come after some time

Posted by: pk at September 16, 2005 02:25 PM

Ideas know no borders.

Whilst USA is the first to demand free market reforms, the sad part is they hate competition.

This frustration is now morphing into a brand of jingoism which is scary.

Posted by: Sunil at September 23, 2005 10:16 AM

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