Matej Drev

Going Soft: How the Rise of Software Based Innovation Led to the Decline of Japan's it Industry and the Resurgence of Silicon Valley

This paper documents a shift in the nature of innovation in the information technology (IT) industry. Using comprehensive data on all IT patents granted by the USPTO from 1980-2002, we find strong evidence of a change in IT innovation that is systematic, substantial, and increasingly dependent on software. This change in the nature of IT innovation has had differential effects on the performance of the IT industries in the United States and Japan. Using a broad unbalanced panel of US and Japanese publicly listed IT firms in the period 1983-1999, we show that (a) Japanese IT innovation relies less on software advances than US IT innovation, (b) the innovation performance of Japanese IT firms is increasingly lagging behind that of their US counterparts, particularly in IT sectors that are more software intensive, and (c) that US IT firms are increasingly outperforming their Japanese counterparts, particularly in more software intensive sectors. The findings of this paper thus provide a fresh explanation for the relative decline of the Japanese IT industry in the 1990s. Finally, we provide suggestive evidence consistent with the hypothesis that human resource constraints played a role in preventing Japanese firms from adapting to the shift in the nature of innovation in IT.

Economic and business dimensions The extent of globalization of software innovation

Will the software development laboratories follow the production mills?

Get with the Program: Software-Driven Innovation in Traditional Manufacturing

This paper documents the increasing importance of software for successful innovation in manufacturing sectors well beyond the traditional definition of electronics and information technology. Using panel data for 229 publicly listed firms from 18 countries across four manufacturing industries over the period 1981–2005, we find significant variation across firms in the software intensity of their innovative activity. Firms that exhibit a higher level of software intensity generate more patents per R&D dollar, and their investment in R&D is more highly valued by equity markets. Data and the online appendix are available at https://doi.org/10.1287/mnsc.2017.2960. This paper was accepted by Anandhi Bharadwaj, information systems.

When the Big One Came: A Natural Experiment on Demand Shocks and Market Structure in India’s Influenza Vaccine Markets

This paper examines the relationship between exogenous demand shocks and market structure in India’s influenza vaccine markets. Using a novel dataset of detailed purchasing information for vaccines in the country, and exploiting the occurrence of the 2009-10 global H1N1 pandemic as an exogenous demand shock, we provide evidence of heterogeneous responses to the shock by domestic and multinational vaccine manufacturers in the influenza vaccine market relative to our control group of all other vaccine markets. We find that such a shock results in reversal of market structure for influenza vaccines in India, with a decline in market share of multinational vaccine manufacturers and significant gains in market share of domestic vaccine manufacturers. This reversal of the market structure is driven by increased innovation efforts by domestic vaccine manufacturers, whose effects persist even after the shock is over. Finally, we examine the role of targeted policy instruments aimed at stimulating innovation in domestic vaccine manufacturers. Our results remain robust to the use of alternative controls, synthetic controls, and various estimation methodologies. They provide new evidence regarding the role of demand shocks in creating differential incentives for domestic and multinational vaccine manufacturers to innovate in an emerging economy context. In addition, our results offer useful insights into the role of policy regarding pandemic preparedness in emerging markets facing adverse welfare effects from pandemics.

One Size Might Not Fit All: Pandemics, Firm Heterogeneity, and Innovation in Indian Vaccine Markets

This paper examines the relationship between exogenous demand shocks and market structure in India’s influenza vaccine markets. Using a novel dataset of detailed purchasing information for vaccines in the country, and exploiting the occurrence of the 2009-10 global H1N1 pandemic as an exogenous demand shock, we provide evidence of heterogeneous responses to the shock by domestic and multinational vaccine manufacturers in the influenza vaccine market relative to our control group of all other vaccine markets. We find that such a shock results in reversal of market structure for influenza vaccines in India, with a decline in market share of multinational vaccine manufacturers and significant gains in market share of domestic vaccine manufacturers. This reversal of the market structure is driven by increased innovation efforts by domestic vaccine manufacturers, whose effects persist even after the shock is over. Finally, we examine the role of targeted policy instruments aimed at stimulating innovation in domestic vaccine manufacturers. Our results remain robust to the use of alternative controls, synthetic controls, and various estimation methodologies. They provide new evidence regarding the role of demand shocks in creating differential incentives for domestic and multinational vaccine manufacturers to innovate in an emerging economy context. In addition, our results offer useful insights into the role of policy regarding pandemic preparedness in emerging markets facing adverse welfare effects from pandemics.

Exogenous Demand Shocks and New Product Introductions: Evidence from a Quasi-Natural Experiment in India’s Vaccine Markets

This paper examines the relationship between exogenous demand shocks and market structure in India’s influenza vaccine markets. Using a novel dataset of detailed purchasing information for vaccines in the country, and exploiting the occurrence of the 2009-10 global H1N1 pandemic as an exogenous demand shock, we provide evidence of heterogeneous responses to the shock by domestic and multinational vaccine manufacturers in the influenza vaccine market relative to our control group of all other vaccine markets. We find that such a shock results in reversal of market structure for influenza vaccines in India, with a decline in market share of multinational vaccine manufacturers and significant gains in market share of domestic vaccine manufacturers. This reversal of the market structure is driven by increased innovation efforts by domestic vaccine manufacturers, whose effects persist even after the shock is over. Finally, we examine the role of targeted policy instruments aimed at stimulating innovation in domestic vaccine manufacturers. Our results remain robust to the use of alternative controls, synthetic controls, and various estimation methodologies. They provide new evidence regarding the role of demand shocks in creating differential incentives for domestic and multinational vaccine manufacturers to innovate in an emerging economy context. In addition, our results offer useful insights into the role of policy regarding pandemic preparedness in emerging markets facing adverse welfare effects from pandemics.

The Great Realignment: How the Changing Technology of Technological Change in Information Technology Affected the U.S. and Japanese IT Industries, 1983"“1999

This paper empirically shows that innovation in Information Technology (IT) has become increasingly dependent on and intertwined with innovation in software. This change in the nature of IT innovation has had differential effects on the performance of the United States and Japan, two of the largest producers of IT globally. We document this linkage between software’s contribution in IT innovation and the differential innovation performance of US and Japanese electronics, semiconductors, and hardware firms. We collect patent data from USPTO in the period 1980-2002 and use a citation function approach to formally show the trend of increasing software dependence of IT innovation. Then, using a broad unbalanced panel of the largest US and Japanese publicly listed IT firms in the period 1983-1999, we show that (a) Japanese IT innovation relies less on software advances than US IT innovation, (b) the innovation performance of Japanese IT firms is increasingly lagging behind that of their US counterparts, particularly on IT sectors that are more software intensive, and (c) that US IT firms are increasingly outperforming their Japanese counterparts, particularly in more software intensive sectors. The findings of this paper could provide a fresh explanation for the relative decline of the Japanese IT industry in the 1990s.