New research will help understand how innovations in technology are spread across regions, industries, occupations and firms to generate key data insights for businesses
The development of novel technologies, the degree to which they affect jobs and the speed with which they spread across regions, firms and industries are key elements in the study of economic growth, economic inequality, entrepreneurship and firm dynamics. Many researchers have sought to understand whether the benefits from the adoption of new technologies accrue primarily to inventors, early investors, highly skilled users, or to society more widely through, for instance, employment and income growth.
Other studies have explored the geography of the development and diffusion of new technologies. One key obstacle to resolving these questions is that it has proven difficult to measure the development and spread of multiple technological advances in a single framework, and to separate those innovations that affect jobs and businesses from those that do not.
This research makes use of the full text of millions of patents and job postings and hundreds of thousands of earnings conference calls over the past two decades to make progress on this challenge. In particular, the authors develop a flexible methodology that allows them to determine which innovations or sets of innovations (“technologies”) affect businesses, trace these back to the locations and firms where they emerged, and track their diffusion through regions, occupations and industries over time. They then use the newly created data to establish five stylized facts about the development and diffusion of disruptive technologies across space, skill levels and other dimensions.
First, the locations where disruptive technologies are developed are geographically highly concentrated, with a handful of urban areas contributing the majority of the early patenting and early employment within each technology. Second, despite this initial concentration, jobs relating to use or production of the new technologies gradually spread out geographically. Third, while initial jobs associated with a given technology are typically high- skilled, over time the mean required skill levels of the new jobs declines. Fourth, these trends towards region and skills-broadening are related: low-skill jobs associated with a given technology spread out geographically significantly faster than high-skill ones. Finally, because of the slower spread of high-skill jobs, disruptive technologies continue to offer long-lasting benefits for their pioneer locations, which retain a long-term advantage in these high-quality jobs for multiple decades. These pioneer locations are more likely to arise in areas with universities and high-skilled labour pools.
Infant industry strategies are often predicated on the notion that early advantages in innovation and employment will yield lasting benefits for regions; particularly in the form of high-quality employmentAhmed Tahoun, Associate Professor of Accounting, London Business School
The potential impact
Policymakers in many parts of the world devote enormous energy to fostering nascent technologies, ranging from efforts to support academic research to luring start-ups from other cities and countries. Such infant industry strategies are often predicated on the notion that early advantages in innovation and employment will yield lasting benefits for regions; particularly in the form of high-quality employment.
The authors introduce an approach to understand which new technologies affect businesses and to trace their diffusion across regions, industries, occupations and firms. They can then map the spread of disruptive technologies in these dimensions, focusing on the hiring associated with each important innovation.
Beyond these core results of the authors’ research, the development and spread of disruptive technologies are key objects of interest in multiple fields of economics. The authors therefore hope that the data they provide as part of their research may prove useful to address a range of additional research questions in the study of economic growth, inequality, entrepreneurship and firm dynamics.
The dataset constructed as part of this research is available at www.techdiffusion.net
- Nicholas Bloom, Professor of Economics, Stanford University
- Tarek Alexander Hassan, Associate Professor of Economics, Boston University
- Aakash Kalyani, PhD Student, Boston University
- Josh Lerner, Professor of Investment Banking, Harvard University
Ahmed Tahoun is an Associate Professor at London Business School. He has been a research scholar at the University of Chicago Booth School of Business and the Wharton School, a faculty member at the London School of Economics, a research fellow at the University of Valencia, and a banker at HSBC. His research tackles important social questions, ranging from the quid pro quo relations between politicians and the corporate world; the economic consequences of the Egyptian Revolt; and the global development of securities law in response to corporate scandals during the past 200 years. He has also been engaged in comparative international work on executive compensation, looking for the roots of cross-country differences in pay packages. His current research agenda focuses on measuring firms’ exposure to uncertainty shocks, and on measuring the diffusion of disruptive technologies. His research has been published in The Quarterly Journal of Economics, The Review of Financial Studies, the Journal of Financial Economics, the Journal of Accounting Research, the Journal of Accounting and Economics, The Accounting Review and the Review of Finance. The Economist, the New York Times, the Financial Times and the WSJ have covered his work. He is currently an associate editor at the Journal of Accounting Research. Dr Tahoun has been the recipient of seven consecutive grants from the prestigious Institute of New Economic Thinking; has twice received LBS’s faculty research award; was granted Referee of the Year award by the Journal of Accounting Research and was made a member of its editorial board; and was named one of the Top 40 Professors under 40. Dr Tahoun received his PhD from Manchester Business School and completed his doctoral training courses at the Wharton School and Tilburg University.