Innovation convergence

Summary

Focus

Economic convergence – the idea that less developed countries should grow faster and catch up with more developed ones – is predicted by many basic economic models of growth and has been a central empirical question. Innovation and improvement in productivity are essential for sustained long-term growth. Thus, the role of innovation in the convergence process – and whether innovation itself converges – is crucial to understand long-term growth.

Contribution

We examine patenting (a measure of innovative activity) at the country-industry level. We test for convergence in patenting rates (growth is faster when the number of initial patents are lower) both within and across countries and industries. Our data cover 20 manufacturing industries from 32 countries over 1976-2006. We also explore the role of countries' financial and institutional environment in speeding up patenting convergence.

Findings

Patent rates converge in general, across industries within a country, and across countries for a given industry. We show evidence for convergence in number of patents, patent citations (quality of innovation), citations per patent (average patent quality), and patents per worker (efficiency of innovative production). Patent convergence is broad-based across all countries, industries and time periods. Additionally, we show that patenting convergence is faster with greater levels of financial and institutional development. Country-level data confirm patent convergence continued through 2020.

Abstract

This paper sheds light on convergence of innovation (patenting) using data from two-digit manufacturing industries in 32 countries over the period of 1976-2006. It shows that patenting rates tend to converge over time (patenting growth is faster when initial patents are lower), including within countries (across industries) and within industries (across countries). Notably, the quality (citations and citations per patent) and efficiency (patents per worker) of innovation also exhibit convergence. Convergence is widespread across all countries and industries in our sample, and in all time periods. Country-level data confirms patent convergence continues through 2020. Patent convergence is stronger where financial development, international financial integration, and institutional quality are higher, and under the presence of financial policies supportive of financial liberalization. These factors contribute to both within country (across industries) and within industry (across countries) convergence. The results highlight the importance of financial and institutional environment for the growth of patenting, and ultimately for economic growth and productivity.

JEL classification:  O4, O3, E2, E44, F3

Keywords: innovation, patents, citations, convergence, financial development, financial openness, institutional quality