Innovation and economic crisis
Economic crisis provides the breeding ground for innovation and entrepreneurship. If the history provides a benchmark, the Great Depression in the early 1930s was followed by a series of ‘destructive’ innovation in the US. Despite precipitous fall of output at that time, industries like the chemical, television, radio and automobile industries produced technological breakthroughs that defined these industries for the next several decades.
Now, what can be said about innovation in the current economic crisis triggered by the COVID-19 pandemic? More broadly, how economic crisis will shape innovation.
To answer this question, I applied a big data approach to over 3 million records of patents as a measure of innovation and over 36 million citation records, from the United States Patent and Trademark Office (USPTO).
I focussed on the technological development of Japan, which was hit hard by the economic crisis in the early 1990s and still is recovering, but was an innovation powerhouse in the 1980s.
Big data approach
The patent data provides a wealth of information about one’s inventions including the date of the application, the detailed technology class, the name and address of inventors, IP assignees, and text descriptions of the novelty and usefulness of inventions.
Because of the importance of the US market and globalisation of R&D, USPTO receive a substantial amount of patent applications from foreign inventors (called, non-resident applications).
Taking advantage of this rich dataset, the new study using a Big-data method examined more than 3 million patent applications from 190 countries and over 36 million citation records to those patents in USPTO for the period 1980-2011.
The method essentially compared Japan’s innovation, measured by the number of citations received, with other innovating countries before and after the economic crisis in the early 1990s.
Key ‘take-away’
The crisis has exerted prolonged adverse effects on the citation performance of Japanese patents even 10 years after the crisis. Notably, a substantial drop in citations was due to non-US citations.
This reduction in citations offset the favourable position of Japanese patents in the pre-crisis period. Overall, the prolonged economic crisis in Japan substantially shifted citation behaviour away from Japanese innovation in the post-crisis period.
Evidence shows that the prolonged economic downturn and slower macroeconomic recovery in the post-crisis can drag innovation down in long term
Implications for the current economic crisis
Evidence shows that the prolonged economic downturn and slower macroeconomic recovery in the post-crisis can drag innovation down in long term. Looking at the current global economic recession, the mission for policymakers is to realise the crucial element of the ‘length’ in the crisis.
Any delay in policy responding to the economic crisis would lessen a chance for new inventions to emerge. This in turn is weakening the national capacity of innovation for nations.
Nobu Yamashita is a member of the Centre for International Development in School of Economics, Finance and Marketing, College of Business and Law
