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Saturday, September 1, 2018

China and Korea Crash the Party in the Global Knowledge Economy

For many years, when you looked at international comparisons involving research and development or patents, you could summarize global patterns pretty well with just the US, Japan and Germany (and maybe a few other European countries, if you were feeling energetic). But now any sketch of the global science and technology economy would be incomplete without including China and Korea, too.  Johannes Eugster, Giang Ho, Florence Jaumotte, and Roberto Piazza provide an overview in "How Knowledge Spreads: More rapid diffusion of know-how is an important benefit of globalization," in the September 2018 issue of Finance & Development (pp. 52-55).  

Here are some illustrations. The top figure shows national R&D spending in absolute terms (that is, not as a percentage of GDP). The US leads the way, but China is now in second place, well ahead of the EU G3 (France, Germany, and the United Kingdom). And Korea is catching up to Japan.
The bottom figure shows total patents. The article reports: 
"An examination of international patent families—using a patent-count measure that includes only applications to at least two distinct patent offices, in order to exclude low-value patents—shows that China and Korea each patent about 20,000 inventions a year. Although this is still substantially below patenting in Japan and the United States (about 60,000 each), patenting activity in China and Korea is comparable to the average of France, Germany, and the United Kingdom. A deeper investigation into the types of patents by economic sector reveals that the rise of patenting in China and Korea is particularly pronounced in the electrical and optical equipment sectors and, in Korea, for machinery equipment as well."
Another way to gain some insight as to whether the patents from China and Korea are low-value or high-value is to look at how new patents from say, the US or Japan, cite earlier patents from, say, China or Korea. he red lines show patent citations within regions. he blue lines show patent citations between regions. he thickness of the lines is scaled to the number of patents. So in 1995, for example, the Korea/China area looks very small, both in number of patents cited within and outside the region. By 2014, it looks like a more-or-less equal partner in patent citations with the US, the EU, and Japan. 
The article also includes a brief discussion of whether this shift should be viewed as a good thing from the perspective of the US economy. For example, does a rise of innovation in China and Korea in some way discourage innovation in the US economy? Or hurt the US economy in some other way? The authors take what I think is ultimately the correct  position, which is that world economic output and US economic output are better off with more new ideas, growing incomes, and larger markets. But new ideas and markets can be a source of economic stress and worker dislocation, too.