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ECA Technology Absorption and Technological Development:What Can We Learn from Patent Data?

Lee BranstetterCarnegie Mellon University and NBER

June 17, 2008

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Quote from a skeptic: Paul Krugman

“…knowledge flows, by contrast, are invisible; theyleave no paper trail by which they may be measuredor tracked, and there is nothing to prevent the theoristfrom assuming anything about them that she likes.”

- P. Krugman, Geography and Trade, 1991

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WRONG!

Patents provide rich information on technological development, even in “follower” countries

And (some) patents can even provide direct measures of technology absorption

Patents can be quite useful in filling in the gaps in our knowledge surrounding technological development and technology absorption in ECA and other developing regions

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The two faces of R&D

Seminal paper by Cohen and Levinthal

Argued that technology absorption requires active learning effort on the part of recipient firms

Most successful technology absorbers invest in the technology they seek to understand

Investments in “absorptive capacity”

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The pyramid of technological development

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The base of the pyramid is hard to measure…

The simplest kind of technological development:absorption, without modification, of technologythat is well known and commonplace in the West. This is essentially imitation, and it typically does not involve formal licensingagreements, extensive use of foreign technicalexperts, or significant investments on the part ofthe absorbing firm

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But measurement gets easier as absorption gets more sophisticated. . .

More sophisticated firms will strategically invest in the absorption of foreign technology,and modify it to fit the local context. This willrequire incremental innovation on the part of the absorbing firm. Firms and industries at thisstage will often engage in formal technologylicensing and the use of external consultants.They will also generate incremental inventions,some of which may be patented.

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The more advanced stages can be examined with patent data. . .

As firms and industries grow in technical prowess, they will intend to engage in moresubstantive modification of foreign technologiesand begin to develop some of their own. This activity is often reasonably well measured by patent data.

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Including those stages that involve real innovation

And our study suggests that some ECA firms andindustries are even participating in the creationof new technology for the global market, oftenin cooperation with foreign partners.

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Most patents represent “incremental” innovation

Nonspecialists often believe patents are reserved for “breakthrough” inventions

But, even in the West, the vast majority of patented inventions are quite incremental in nature

This has been demonstrated by expert studies of the technical content of patents as well as studies of the distribution of patents’ economic value.

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The most successful “technological followers” engaged in vigorous incremental invention at an early stage

Even in the mid-1960s, Japan was already generating large numbers of (mostly) incremental patents

As Taiwan and Korea followed in Japan’s footsteps, they began to ramp up their patenting rapidly in the 1980s and early 1990s

More recently, India and China have substantively increased their patenting

The World Bank has used patents to study the technological development of other developing regions

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Patents as an indicator of knowledge absorption and technological development in ECA

Careful examination of ECA-generated patents provides a detailed look into the absorption/innovation process

Can view trends over time

Can see where ECA absorption and incremental innovation is concentrated in geographic space and technology space

Inventors and firms are named in patent documents

Patent citations link ECA inventions to the foreign and local knowledge upon which the inventor builds

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ECA patenting in the EPO, 1978-2004

ECA Patenting at the EPO, 1978-2004

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U.S. patent grants for ECA, China, and India

Figure 2.4: U.S. Patent Grants for the ECA 7 vs. India and China

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1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Year patent granted

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ECA 7

India

China

Source: Authors’ calculations based on the U.S. Patent and Trademark Office Cassis CD-ROM, December 2006 version.

Note: The graph compares counts of patents in which at least one inventor is based in one of seven ECA countries, India, or China. The ECA-7 are Russia, Hungary, Poland, Slovenia, the Czech Republic, Bulgaria, and Ukraine.

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ECA patenting by country, 1992-2005Figure 2.2: ECA Patenting in Europe, by First Inventor Country of Residence

36%

16%9%

11%

7%

4%

17%Russia

Hungary

Poland

Czech Republic

Slovenia

Ukraine

Others

Source: Author’s calculations based on data from the European Patent Organization, 2006.

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“International coinvention” is increasingly important in ECA patenting

A large fraction of ECA patents are made up of multinational inventor teams

We call this phenomenon “international coinvention”

Much of it takes place under the auspices of Western multinationals

Are ECA inventors increasingly participating in an international division of R&D labor?

We also see growth in international coinvention in India and China

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International coinvention in the ECA 7

Figure 2.5: The Expanding Role of International Coinvention in the ECA 7

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Year patent granted

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Total patents

Purely indigenous patents

Source: Authors’ calculations based on the U.S. Patent and Trademark Office Cassis CD-ROM, December 2006 version.

Note: The graph tracks total counts of patents in which at least one inventor is based in one of seven ECA countries: Russia, Hungary, Poland, Slovenia, the Czech Republic, Bulgaria, and Ukraine. “Purely indigenous patents” are those generated by a team whose members are all based in a single ECA country.

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International coinvention in ECA

0%

20%

40%

60%

80%

100%

1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

All Same ECA Different ECA ECA and OECD ECA and Other Countries

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ECA coinvention with advanced OECD countries Figure 2.3: ECA Coinvention by Partner Country

36%

7%

8%8%

4%

4%

5%

5%

3%

4%

3%3%

10%

Germany

Switzerland

Britain

France

Belgium

Austria

Finland

Italy

Ireland

Canada

Japan

Korea

Other

Source: Author’s calculations based on data from the European Patent Office

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International coinvention in Russia

Figure 2.6: International Coinvention in Russia

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Year patent granted

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Total Russian patenting

Purely indigenous Russianpatenting

Source: Authors’ calculations based on the U.S. Patent and Trademark Office Cassis CD-ROM, December 2006 version.

Note: The graph tracks total counts of patents in which at least one inventor is based in Russia. “Purely indigenous patents” are those generated by a team whose members are all based in a single ECA country.

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Top 10 Russian generators of U.S. patents

Table 2.1: Top 10 Russian Generators of U.S. Patents

Rank Name NationalityNumber of U.S.

Patents1 LSI Corp. United States 1112 Samsung Electronics South Korea 713 General Electric Co. United States 37

4 Elbrus International Russia 364 Sun Microsystems United States 36

5 Ceram Optec Industries Germany 28

6 Nippon Mektron Japan 267 Ajinomoto Co. Japan 258 Otkrytoe Aktsionernoe

ObschestvoRussia 20

9 Procter & Gamble United States 19

9 Ramtech United States 1910 Advanced Renal Technologies United States 16

10 Corning Inc. United States 1610 Nortel Networks Canada/United States 16

Source: Authors’ calculations based on the U.S. Patent and Trademark Office Cassis CD-ROM, December 2006 version.

Note: The graph tracks total counts of patents in which at least one inventor is based in Russia.

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Patent citations as indicators of knowledge flows

U.S. patent applicants are required to “make appropriate citations to the prior art” on which they build

An analogy can be drawn between patent citations and the citations that appear in an academic paper

The citations received by ECA patents provide an indication of their technological impact

The citations made by ECA patents provide an indication of the knowledge base from which the ECA inventors draw

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Patent citations in ECA vs. Comparator Regions

Table A2.1: Patent Citations in ECA and Comparator Regions

VariableNumber of

citationsMean application

year GeneralitySubsequent

citations

ECA (all) 7.1889 1984.764 0.4657 14.432

ECA (indigenous) 5.7527 1983.984 0.4493 13.3107

Emerging Asia (indigenous) 6.8698 1985.798 0.4689 13.541

Advanced Asia (indegenous) 5.3601 1987.297 0.4669 13.4304

European periphery (indigenous) 7.452 1985.263 0.4671 15.1387

European Core (indigenous) 6.017 1985.888 0.4641 14.2001

Latin America 8.1445 1983.623 0.4129 11.7272 Source: Authors’ calculations based on use of Bronwyn Hall’s update of the NBER Patent Citation Database. Data include patents granted through 2002.

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The differences are statistically significant!

Table A2.2 Hypothesis Tests for Equality of Sample Means

Variable Number of citations Mean application year

Generality Subsequent citations

ECA vs. Emerging Asia -5.161 (0.000) -6.576 (0.000) -1.929 (0.0537) +0.246 (0.8054)

ECA vs. Advanced Asia -0.588 (0.5563) -17.019 (0.000) -2.465 (0.0137) -4.303 (0.000)

ECA vs. EU Periphery -10.053 (0.000) -6.417 (0.000) -2.229 (0.0258) -7.229 (0.000)

ECA vs. EU Core -5.092 (0.000) -9.880 (0.000) -2.005 (0.0449) -5.515 (0.000)

ECA vs. Latin America -11.225 (0.000) +1.763 (0.078) +3.598 (0.000) +0.348 (0.7275)

Source: Authors’ calculations based on use of Bronwyn Hall’s update of the NBER Patent Citation Database. Data include patents granted through 2002. Note: The test statistic is a z-statistic. A (-) sign indicates that ECA is smaller than the comparator region, a (+) sign indicates that ECA is bigger. P-values are given in parentheses. Statistically significant differences are in bold.

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Policy implications

The growth of ECA patenting is decelerating, even as Chinese and Indian patenting accelerates

Indigenous ECA patenting continues to lag in quality, quantity, and connectedness to the global state of the art

Multinational R&D in ECA raises the quality and quantity of ECA patenting

ECA inventors are participating in international coinvention networks, a phenomenon worthy of further study

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Next steps – peering into the coinvention process

Patent data identify the ECA and Western members of international inventor teams

We propose to interview (some of) these inventors, survey others

What are the dynamics of invention inside an international inventor team?

Are ECA inventors graduating from “coinvention” to “invention”?