Globalization and the Rapid Spread of Knowledge
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Bibliographic details
- Authors: JOHANNES EUGSTE, ROBERTO PIAZZA, FLORENCE JAUMOTTE, GIANG HO
- Published: September 1, 2018
Overview and key argument
- With globalization sparking competition and innovation, knowledge is rapidly spreading around the world.
- A fair and level playing field is essential: intellectual property rights must be well designed and enforced.
- More rapid diffusion of know-how is an important benefit of globalization.
Evidence and measurement of knowledge diffusion
- Cross-patent citations are used as a direct measure of knowledge flows because patent applications cite related prior knowledge.
- Data source: worldwide patent database PATSTAT covering more than 100 million patent documents.
- Limitations noted: this measure excludes informal knowledge flows and patent infringement but is measurable and recorded systematically.
- Historical pattern:
- From 1995 to 2014, three-quarters of the world’s patented innovations originated in the Group of 5 (G5): the United States, Japan, Germany, France, and the United Kingdom.
- In 1995, the United States, Europe, and Japan dominated global patent citations; in more recent years, Korea and China have made increasingly large use of the global stock of knowledge as measured by their patent citations.
- Empirical result: a 1 percent increase in knowledge flows from the G5 is associated on average with about a 1/3 percent increase in patenting activity by the recipient country-sector if domestic R&D is held constant.
- Trend: the strength of this effect has increased over time, especially for emerging market economies.
Emergence of new global innovators and R&D role
- New innovators emerging: Korea and China have joined the top-five innovating countries by patenting activity and R&D spending.
- R&D spending (Organisation for Economic Co-operation and Development data, presented in constant and purchasing-power-parity-adjusted terms):
- China has increased its spending on R&D ninefold since the early 2000s, to $375 billion a year.
- United States: $460 billion.
- Japan: $150 billion.
- Korea: $70 billion a year.
- Patenting activity (international patent families, counting only applications to at least two distinct patent offices):
- China and Korea each patent about 20,000 inventions a year.
- Japan and the United States: about 60,000 each.
- China and Korea patenting comparable to the average of France, Germany, and the United Kingdom.
- Sector detail: the rise of patenting in China and Korea is particularly pronounced in the electrical and optical equipment sectors and, in Korea, for machinery equipment as well.
- Domestic R&D serves dual purposes:
- Spur development of new technologies.
- Help countries absorb existing foreign technologies.
Competition and its effects on innovation
- Concerns about whether emerging innovators discourage innovation in traditional leaders are addressed:
- Technology leaders benefit directly by selling technologies or licensing patents, assuming intellectual property rights are respected.
- Indirect benefits arise because higher productivity in other economies raises incomes and demand for exports.
- Knowledge is nonrival: one person’s use of knowledge does not prevent others from knowing and improving on it; new ideas from China and Korea can benefit innovators in traditional technology leaders.
- Cross-patent-citations show inventors in G5 countries increasingly cite Chinese patents; these citations are approaching the same order of magnitude as those from G5 to other advanced economies.
- Analysis finds knowledge flows are not unidirectional; traditional technology leaders benefit from each other’s innovations and reap greater benefits than nonleader countries do.
- Competition has been a stimulating force:
- Increased competition—measured by import penetration from China or by the decline in global sales concentration associated with the rise of emerging market firms—has spurred innovation and adoption of foreign technologies for most countries and sectors examined.
Productivity trends and broader context
- US trends: aggregate R&D spending has continued its robust rise, while patenting activity and total factor productivity show signs of leveling off.
- Interpretation: reduced measured productivity growth more likely reflects a temporary slowdown during the transition between two major innovation waves—the mid-1990s information and communication technology revolution and the much-anticipated automation and artificial intelligence revolution—along with other structural and cyclical factors.
Policy implications and recommendations
- Intellectual property rights must be well designed and enforced to preserve incentives for innovation:
- Without respect for intellectual property rights, breakthroughs could decline if innovators cannot recoup costs.
- Protection of intellectual property rights is important for emerging market economies to benefit from multinationals’ technology transfer and to incentivize domestic inventors.
- Many G5 concerns—especially regarding China—center on forced transfer of technology at nonmarket, unfavorable terms in exchange for access to large and fast-growing markets.
- The explosion of Chinese patenting is presented as an encouraging sign that as China develops valuable innovations, it may come to recognize the value of intellectual property protection.
JOHANNES EUGSTE is economists in the IMF’s Research Department. ROBERTO PIAZZA is a economists in the IMF’s Research Department. FLORENCE JAUMOTTE is a deputy division chief in the IMF’s Research Department. GIANG HO is a economists in the IMF’s Research Department.
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