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This paper proposes a latent variable approach to examine the induced innovation hypothesis originating from Hicks (The theory of wages, Macmillan, London, 1932). It allows a flexible decomposition of total factor productivity into Type I (exogenous) and Type II (induced) technical changes using a latent variable d as an argument in a variable cost function. By making extensive use of duality theory, we are able to estimate the Hicksian input demand functions, which are explicit in d but may lack a closed-form representation in terms of observable variables such as input prices and output level. The "unobservability" of d is solved by using a numerical inversion estimation method. We apply this methodology with an appropriate estimator to investigate the impact of induced innovation on China's total factor productivity growth. Our findings indicate that the induced innovation hypothesis is strongly supported by the data and that induced innovation has a positive and profound effect on China's productivity growth. [ABSTRACT FROM AUTHOR]

This study examines the induced innovation hypothesis (IIH) from 1958 to 2015 for two Canadian agriculture regions: Central Canada (the provinces of Ontario and Quebec) and Western Canada (the provinces of Alberta, Saskatchewan and Manitoba). There is broadly consistent support for the IIH for Canadian agriculture, especially for Western Canadian agriculture. In addition, there is support for the notion that US, as well as Canadian, research expenditures are important to explain changes in the input ratio in Canadian agriculture in the long run. This indicates the existence of spillover effects from US agricultural research expenditures to Canadian agriculture. [ABSTRACT FROM AUTHOR]

Despite a wealth of case-specific insights from agricultural adoption studies, we lack systematic evidence on which technology characteristics matter for adoption across different innovation contexts. We synthesise the results of 304 quantitative farm-level adoption studies for a wide range of agricultural innovations across more than 60 countries using multi-level meta regression. Our results show that land, capital and knowhow are generally more important when an innovation uses the respective factor intensively, but this effect is reduced in contexts where the factor is abundant. Our findings have implications for the design of rural development and agricultural extension programmes. Both should consider the interplay of geographic context and innovation characteristics to develop more effective sustainable intensification strategies. [ABSTRACT FROM AUTHOR]

Using historical data for the 1700–1914 period, this paper analyses the nature and direction of technical change in Britain. The evidence in this paper indicates that, over this long period, labour‐saving technology adoption was a major response to changes in relative factor prices, thus supporting the hypothesis that 'induced innovation' was a major driver of technical change during the British industrial revolution. Labour saving was made possible and sustained by capital‐augmenting and energy‐augmenting technical change coupled with continuous capital accumulation and abundant energy supplies. This process placed the British economy on a higher capital–labour ratio equilibrium, and was the primary force driving sustained productivity growth, which further raised wages and living standards. [ABSTRACT FROM AUTHOR]

Induced innovation is a multi-faceted process characterized by interaction between demand-pull forces, path-dependent self-reinforcing change, and the cost reduction of technology that occurs with cumulative deployment. By endogenously including induced innovation in energy models, policy analysts and modellers could enable a mission-oriented approach to policymaking that envisions the opportunities of accelerating the low-carbon energy transition while avoiding the risks of inaction. While the integrated assessment models used in the intergovernmental panel on climate change (IPCC-IAMs) account for induced innovation, their assumptions of general equilibrium and optimality may reveal weaknesses that produce unsatisfactory results for policymakers. In this paper, we develop a menu of options for modelling induced innovation in the energy transition with non-equilibrium, non-optimal models by a three step methodology: a modelling survey questionnaire, a review of the literature, and an analysis of case studies from modelling applications within the economics of energy innovation and system transition (EEIST) programme. The survey questionnaire allows us to compare 24 models from EEIST partner institutions developed to inform energy and decarbonisation policy decisions. We find that only six models, future technological transformations, green investment barriers mode, stochastic e xperience c urves, economy-energy-environment macro-econometric, M3E3 and Dystopian Schumpeter meeting Keynes, represent endogenous innovation—in the form of learning curves, R&D, and spillover effects. The review of the literature and analysis of case studies allow us to form a typology of different models of induced innovation alongside the IPCC-IAMs and develop a decision tree to guide policy analysts and modellers in the choice of the most appropriate models to answer specific policy questions. The paper provides evidence for integrating narrow and systemic approaches to modelling-induced innovation in the context of low-carbon energy transition, and promotes cooperation instead of competition between different but complementary approaches. These findings are consistent with the implementation of risk-opportunity analysis as a policy appraisal method to evaluate low-carbon transition pathways.

We propose a new methodology to estimate empirically the input price-induced technical change and total factor productivity (TFP) growth in China. Our primary goal is to test Hicks' induced innovation hypothesis by examining whether technical change in China has been induced by sharp increase in input prices that have accompanied its rapid economic growth. Utilizing the idea of a firm's two-stage optimization problem, we develop a new parametric form of the variable profit function wherein the derived input demand and output supply functions can be easily constrained to be regular, and the functional structure is parsimonious in the number of parameters. Applying this methodology to Chinese time series data for 1986–2017, we find that not only is wage-induced innovation significant and quantitatively important, but also that it substantially buffered a decline in TFP growth before 2006 that would otherwise be substantial. Overall, we conclude that China's economic growth is predominantly driven by wage-induced innovation along with massive injection of heavily subsidized physical inputs in public works and huge investment in industrial sectors. [ABSTRACT FROM AUTHOR]

There is an ongoing discussion about the effectiveness of carbon pricing, with a strong division between optimists and pessimists. A recent review study by Lilliestam, Patt and Bersalli (2021) of the impact of carbon pricing on low-carbon innovation and deep carbonization concludes that there is no evidence for such an impact. We evaluate this study and identify various shortcomings of it, which together cast strong doubts on its main conclusion. Instead, we conclude, based on the studies reviewed by the authors and additional, overlooked literature, that carbon pricing has had a small but positive and significant effect on low-carbon innovation. Our evaluation provides lessons for undertaking a systematic and objective review of research on this topic. Since the main goal of carbon pricing is changing choices by firms and consumers that affect carbon emissions, we also point the reader towards recent evidence for the broader effectiveness of carbon pricing. [ABSTRACT FROM AUTHOR]

Principles for ethical behavior in the context of research are codified into rules that may change over time to meet peoples' needs in specific institutions, including universities and professional associations. This paper aims to spark discussion about a set of ethical choices beyond those addressed by an IRB or recent association policy statements. Our specific focus is topic selection and the role of researchers' interests and incentives in determining the kinds of research that we do. Using the principle of induced innovation, we show how changing incentives can influence the direction of research effort and thereby affect the kinds of policies or technologies that are supported by available evidence. With this paper, we hope to generate discussion among applied economists about selection bias in research and how we can use insights from economics itself to guide topic selection. JEL CLASSIFICATION: A11; A14; B41; Q00 Related Content: What Do you Mean by "Informed Consent"? Ethics in Economic Development Research Related Content: The Evolving Ethics of Analysis, Publication, and Transparency in Applied Economics Related Content: Ulysses' pact or Ulysses' raft: Using pre‐analysis plans in experimental and nonexperimental research [ABSTRACT FROM AUTHOR]

We investigate the effect of rising labour costs on induced technological change in China's secondary industry. Building on insights developed in a rich literature, we propose a model linking changes in labour productivity to changes in labour costs and the predetermined availability of physical capital. Importantly, we derive testable hypotheses to distinguish induced innovation from standard substitution of capital for labour under fixed technology. Our empirical results support the hypothesis that rising wages have induced labour-saving innovation in China, at least in the decade of the 1990s, but less so or not at all after the middle of the next decade. [ABSTRACT FROM AUTHOR]

We analyze how stylized Integrated Assessment Models (IAMs), and specifically the widely-used Dynamic Integrated Climate-Economy model (DICE), represent the cost of emissions abatement. Many assume temporal independence--that abatement costs in one period are not affected by prior abatement. We contrast this with three dimensions of dynamic realism in emitting systems: (i) inertia, (ii) induced innovation, and (iii) path dependence. We review key evidence from the last quarter century on each of these three components. Studies of stock lifetime, dynamics of diffusion and past transitions suggest typical transition timescales of at least 20-40 years for the bulk emitting systems. The evidence that substantial innovation is induced by both prices and market deployment is unambiguous. Finally, both data and a rapidly growing literature demonstrate substantial path dependence in general, and specifically "carbon lock-in and lock-out." Some stylized models in the past decade have incorporated technology learning, and others have considered inertia, but the combination of these factors is important and not yet evident. More complex hybrid IAMs with technology-rich energy-system models incorporate these factors, but their complexity has limited the wider understanding and influence of their underlying insights. Few if any global models fully represent path dependence. We conclude with likely implications drawing upon the empirical and modeling evidence accumulated, including results from extending DICE with a highly stylized representation of such dynamic factors. This suggests that dynamic interdependencies could multiply several-fold the optimal level of initial abatement expenditure. This is because early abatement then also directly facilitates subsequent emission savings. The diversity of dynamic linkages across sectors and technologies also implies more nuanced policy than a single global carbon price. Thus, the issues explored in this review can radically change the general policy conclusions drawn from models, which, like DICE, neglect dynamic realism. [ABSTRACT FROM AUTHOR]

Biological innovations played a far more important role in American agricultural development than previously thought. These innovations were essential in allowing farmers to combat pests and diseases, to move the agricultural production into new environments, and to increase farm productivity. Many biological advances, especially those aimed at fighting contagious animal diseases, required unprecedented federal government interventions to overcome the free‐rider problem and to transfer new knowledge into effective public policy. Early USDA animal disease programs significantly increased productivity and trade in the livestock sector and prevented hundreds of thousands of untimely deaths in the United States from food‐borne illnesses by 1940. [ABSTRACT FROM AUTHOR]

This paper investigates whether environmental or energy-efficiency regulations induce innovations in relevant technologies through focusing on the tightening of Japanese fuel economy regulations in the 1990s and the early 2000s. Unlike previous studies that analyze patent data, I use vehicle-level specification data for 1985–2004 to estimate whether regulatory pressure accelerated technological progress in fuel efficiency. I compare Japanese automakers with selected American and European automakers in a difference-in-differences framework. The estimation results provide strong evidence for induced technological change: conditional on other vehicle attributes and the production cost, the regulatory tightening induced at least a 3–5% improvement in the average Japanese vehicle's fuel economy relative to a counterfactual case with no regulatory change, an effect which would have taken at least 4–7 years to be realized with no pressure from fuel economy regulations or fuel prices. [ABSTRACT FROM AUTHOR]

We study theoretically and numerically the effects of an environmental tax reform using endogenous growth theory. In the theoretical segment, mobile labor between manufacturing and R&D activities, and elasticity of substitution between labor and energy in manufacturing lower than unity allow for a growth dividend, even if we consider preexisting tax distortions. The scope for innovation is reduced when we consider direct financial investment in the lab, or elastic labor supply. We then apply the core theoretical model to a real growing economy and find that a boost in long-run economic growth following such a carbon policy is a possible outcome. Redistribution of additional carbon tax revenue by lowering capital taxation performs best in terms of effciency measured by aggregate welfare. In terms of equity among social segments the progressive character of lump-sum redistribution fails when we consider very high emissions reduction targets. [ABSTRACT FROM AUTHOR]

• An anatomy identifies four main components of actual or proposed Emissions Trading Systems (ETS). • A different assemblage of options delivers different ETS exemplars. Two main exemplars are identified. • Contrary to current policy discourse, both ETS exemplars cannot co-exist. • The ETS anatomy offers insight and structure for thorough analysis and evaluation of existing ETS. An anatomy identifies four main components of actual or proposed Emissions Trading Systems (ETS): (1) Pursued policy goals with the ETS instrument; (2) Public authority allocations of permits to the regulated participants; (3) Carbon emissions price levels; and (4) Participants' abatement expenses dependent on the ready availability of affordable abatement techniques or of low-carbon innovation opportunities. These components cover a range of options. A different assemblage of options delivers different ETS exemplars. Two main exemplars are identified. The actual EU ETS is highly successful in meeting the goal of low financial burdens on EU industry, thereby precluding carbon leakage. The other exemplar opts for high carbon emissions prices in the EU to induce industrial innovations towards a low-carbon economy. Incumbent industrial interests oppose this exemplar. Contrary to current policy discourse and to wishful proposals, both ETS exemplars cannot co-exist. ETS anatomy offers insight and structure for thorough analysis and evaluation of existing ETS, resulting in context–specific and appropriate designs of the carbon trading systems. [ABSTRACT FROM AUTHOR]

Innovation is an important part of environmental policy, and encouraging innovation is often an explicit goal of policymakers. A large literature in environmental economics examines the links between environmental policy and innovation. Popp et al. (2010) provides an extensive review of the literature on environmental innovation. This paper updates that review, highlighting research published during the past decade, with a focus on empirical research examining links between environmental policy and environmentally friendly innovation. I highlight major trends in the literature, including an increased number of cross-country studies and a focus on the effect of different policy instruments on innovation. I include a discussion of the justifications and evidence for technology-specific policy incentives and present evidence on the effectiveness of government R&D spending. My review concludes with a discussion of three promising areas for new research on environmental innovation. [ABSTRACT FROM AUTHOR]

Abstract Drawing on Boserupian and induced innovation principles, this review explores how the farm technologies and practices associated with integrated soil management and sustainable intensification may vary spatially according to the heterogenous ways in which economic transformation and population dynamics are influencing agricultural factor prices. Long-term trends in many areas are encouraging intensification of capital inputs, including fertilizer use. However, low agronomic efficiency of nitrogen poses a major constraint on fertilizer profitability and use. Integrated soil and agronomic management practices can improve the agronomic efficiency of fertilizer use, but achieving greater adoption of such practices will require greater understanding of best practices for the wide range of environmental conditions and farmer resource constraints in the region. Because sustainable resource managment best practices are highly localized and knowledge-intensive, massively increased investment in localized adaptive farm-level research and extension systems will be required to catalyze sustainable intensification in Africa. Highlights • Economic and demographic trends are exerting powerful spatially-varying effects on agricultural factor prices. • Spatially-varying factor price trends influence which technologies and practices constitute sustainable intensification. • Sustainable intensification may rely increasingly on capital-intensive, labor-saving inputs in many parts of Africa. • Labor-saving practices that raise crop response to nitrogen will be especially valued in economically dynamic areas. • Much greater investment in localized crop science and extension systems are needed to catalyze sustainable intensification. [ABSTRACT FROM AUTHOR]

We conduct a systematic and interdisciplinary review of empirical literature assessing evidence on induced innovation in energy and related technologies. We explore links between demand-drivers (both market-wide and targeted); indicators of innovation (principally, patents); and outcomes (cost reduction, efficiency, and multi-sector/macro consequences). We build on existing reviews in different fields and assess over 200 papers containing original data analysis. Papers linking drivers to patents, and indicators of cumulative capacity to cost reductions (experience curves), dominate the literature. The former does not directly link patents to outcomes; the latter does not directly test for the causal impact of on cost reductions. Diverse other literatures provide additional evidence concerning the links between deployment, innovation activities, and outcomes. We derive three main conclusions. (a) Demand-pull forces enhance patenting; econometric studies find positive impacts in industry, electricity and transport sectors in all but a few specific cases. This applies to all drivers—general energy prices, carbon prices, and targeted interventions that build markets. (b) Technology costs decline with cumulative investment for almost every technology studied across all time periods, when controlled for other factors. Numerous lines of evidence point to dominant causality from at-scale deployment (prior to self-sustaining diffusion) to cost reduction in this relationship. (c) Overall innovation is cumulative, multi-faceted, and self-reinforcing in its direction (path-dependent). We conclude with brief observations on implications for modelling and policy. In interpreting these results, we suggest distinguishing the economics of active deployment, from more passive diffusion processes, and draw the following implications. There is a role for policy diversity and experimentation, with evaluation of potential gains from innovation in the broadest sense. Consequently, endogenising innovation in large-scale models is important for deriving policy-relevant conclusions. Finally, seeking to relate quantitative economic evaluation to the qualitative socio-technical transitions literatures could be a fruitful area for future research.

The article is a first approximation to identify the endogenous factors that could be explaining the dynamics of Fresh Fruits and Vegetables (ffv) exports from Mexico to Japan during the 2000- 15 period. Using Hayami and Ruttan (1971, 1985) approach on induced innovation, and Blando Sánchez (2017) official sources, it is analyzed the degrees of complementarity in the bilateral trade dynamics on Mexican supply of ffv products to Japan. The analysis suggests that the production of fresh foods in the Asian country has decreased, evidencing opportunities for the exports of ffvs produced in Mexico to the Japanese consumer. However, the signing of the cpttp (2018) Agreement challenges the possibility of studying a future model of relative prices that could trigger an innovation process in the sense pointed out by Hayami and Ruttan (1971, 1985) in Mexico. [ABSTRACT FROM AUTHOR]

Stringent environmental regulations may encourage industrial innovation, as technological advancements lower the cost of pollution abatement (Popp et al. in Handbook of the economics of innovation, vol II. Academic Press, Burlington, pp 873-938, 2010). The pollution-havens hypothesis, on the other hand, indicates that, rather than innovating, dirty industries may relocate to countries with less stringent environmental regulations (Copeland and Taylor in J Econ Lit 42(1):7-71, 2004). Thus, more stringent environmental regulations may increase or decrease innovative activities. This paper examines empirically the impact of environmental regulations on R&D intensities and R&D expenditures in 21 manufacturing industries in 28 OECD countries from 2000 to 2007. I consider pollution intensity and the relative ease of relocation (immobility) as industry characteristics that determine the optimal industry response to increased environmental policy stringency. I find that more pollution intensive industries innovate less as regulatory environments become more restrictive relative to less pollution intensive industries. At the same time, more immobile industries innovate more than more mobile industries as environmental regulations become more stringent, illustrating innovation as an alternative to relocation. [ABSTRACT FROM AUTHOR]

This study analyzes environmental regulations and trade performance in manufacturing sectors under static and dynamic conditions. We investigate environmental innovation induced by environmental regulations and the spillover effect on manufacturing sectors, determine whether the spillover effect offsets any negative effect found under static conditions and analyze environmental regulations on the import side. For this, we formulate a trade model that incorporates the environmental innovation equation. We analyze environmental tax, energy tax and the Emissions Trading System (ETS) using strong, balanced panel data from 19 OECD countries for 1996-2009. The results reveal that the static effect of energy tax on exports is negative, but the dynamic effect is positive; however, the positive effect does not offset the negative effect. In short, environmental tax and energy tax decrease the international competitiveness of the manufacturing sectors. Environmental tax and energy tax limit imports, especially in the high-energy consumption group. The analyses of the ETS further complicate the overall picture. It shows that the further research on the effects of ETS on manufacturing firms' competitiveness over their foreign competitors in the global is required. Copyright © 2017 John Wiley & Sons, Ltd and ERP Environment [ABSTRACT FROM AUTHOR]

In this paper we investigate the long-run economic consequences of phasing out nuclear energy in the presence of stringent climate policies. We integrate endogenous growth theory and technology-based activity analysis into a dynamic numerical general equilibrium model. Both market-based and policy-mandated nuclear phase-out are studied. Using data from the Swiss economy we find that the aggregate welfare loss of carbon policy is as large as 1.21% and that nuclear phase-out raises the loss to 1.58%. Nuclear phase-out has no significant effect on economic growth. Increased investment, induced innovation, and sectoral change are the reasons that the economic impact of nuclear phase-out and the trade-off between energy and climate policy are moderate, once the dynamics of an economy are taken into account. Optimal phase-out time for nuclear depends mainly on future cost escalation in the energy sector. [ABSTRACT FROM AUTHOR]

Technological change is a determinant index for agriculture that can lead to the productivity growth by either increasing the total output or increasing the usage of relatively cheap inputs and reducing the relatively expensive inputs. The determination of the magnitude and the direction of technological change in agricultural production has attracted much attention and has become the focal point of intense research efforts over the last couple decades. This topic is frequently studied in two different ways. One is considering the efforts of investment in the research and development technological change. The other is explaining the technological change by testing induced innovation hypothesis that was first proposed by Hicks. Therefore, in this study, with the help of time series by using the cointegration analysis, the induced innovation hypothesis is tested and the effect of investment in agricultural research on technological changing is considered.

Applicability of the induced innovation hypothesis--that a change in relative input prices induces innovation to economize use of the increasingly expensive input (Hicks 1932)--is examined for U.S. public agricultural research. A reduced-form test is developed using input prices from the agricultural production sector, expenditures from the public research sector aimed at developing new technology to save specific agricultural inputs, and variables to control for innovation marginal cost differences and nonhomotheticity. Unlike recent demand-side studies that soundly reject the induced innovation hypothesis for agriculture, support for the hypothesis is found for several input pairings through these tests of public agricultural research using state-level panel data. [ABSTRACT FROM AUTHOR]