Specialization in a Knowledge Economy

Yueyuan Ma

Journal of Political Economy Macroeconomics, 2026, vol. 4, issue 1, 48 - 96

Abstract: Using US census data, this paper exhibits novel specialization patterns of US firms in the 1980s and 1990s. (1) Firms, especially innovating ones, decreased their production scope. (2) Small firms specialized in innovation and large firms in production. An endogenous growth model is developed, with potential mismatches between innovation and production. Calibrating the model suggests that higher patent trading efficiency and stronger patent protection explain 20% of the production scope decrease, 108% of the innovation-production separation, and a 0.64 percentage point increase in the annual growth rate. Empirical analyses suggest that propatent reforms have contributed to the two specialization patterns.

Date: 2026
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