1. GROWTH AND INNOVATION
– THEORY AND POLICY: A
FIRM LEVEL PERSPECTIVE
Dan Andrews
Senior Economist
Structural Policy Analysis Division
Economics Department, OECD
OECD, GloComNet, INET Oxford and EC-GSS
Conference on Complexity of the Economy: Research
and Policy Implications
Paris, 26 October 2015
2. New book:
out now!
Available at:
http://www.oecd.org/economy/the
-future-of-productivity.htm
Book + 5 page policy note +
technical paper + videos
Authors:
Muge Adalet McGowan
Dan Andrews
Chiara Criscuolo
Giuseppe Nicoletti
3. • Three very interesting presentations…
• … which highlight the complex linkages that
characterise our economies…
• … demonstrating the virtue of looking beyond
averages and taking a granular view.
• Some key questions:
– What is the role of the firm?
– What does this mean for policy?
1. Roadmap
4. • Widespread heterogeneity in firm performance within
narrowly defined sectors, which Schumpeterian models
are increasingly connecting to aggregate growth.
• In a well-functioning economy, ideally:
1. Global frontier firms innovate and these technologies
diffuse to other firms, raising within-firm productivity
2. Reallocation to underpin the growth of productive firms,
via the downsizing and exit of less productive firms
3. Crucially, #1 requires #2: efficient reallocation ↑ returns to
experimentation, innovation & adoption.
• But this doesn’t always happen, partly due to policy
weakness.
2. The consequences of firm
heterogeneity
5. 3. The breakdown of the diffusion
machine
Solid growth at the global productivity frontier but spillovers disappointed
Labour productivity; index 2001=0
Source: Andrews, D. C. Criscuolo and P. Gal (2015), “Frontier firms, technology diffusion and public policy: micro
evidence from OECD countries”, OECD Mimeo.
6. 4. Misallocation, big time!
Andrews, D. and F. Cingano (2014), “Public Policy and Resource Allocation: Evidence from Firms in
OECD Countries”, Economic Policy, No. 29(78), pp. 253-296.
Contribution of the allocation of employment across firms
to the level of labour productivity; per cent
Europe does a poor job at channelling resources
to more productive firms, esp. in market services
7. • For policy-making, we need evidence that:
– Complexity is relevant for growth
– Polices can affect complexity
• Other issues
– “Supporting young firms over large firms”
– Effectiveness of R&D subsidies depends on
reallocation (Acemoglu et al., 2014).
– “Supporting a technology accelerates its progress”.
How do we do this?
5. The role of policy
8. 6. Success is almost impossible to
predict, even for the best VC firms
Source: Kerr et al (2014), “Innovation as Experimentation” Journal of Economic Perspectives 28(3), pp. 25-48.
Scores Assigned to Investments at Time of First Investment and the Ultimate
Returns of Those Investments, for One Venture Capital Firm
A highly successful VC firm assigned scores to grade the potential of various projects at the
time of first investment. There is no significant difference between the distribution of scores
between investments that ended up performing very well and those that failed or generated
mediocre returns. Success is almost impossible to predict, even for the best in the business.
