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

Ashish Arora (), Lee Branstetter and Matej Drev

No 16156, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: O31 O32 O33 (search for similar items in EconPapers)
Date: 2010-07
Note: ITI PR
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published as Ashish Arora & Lee G. Branstetter & Matej Drev, 2013. "Going Soft: How the Rise of Software-Based Innovation Led to the Decline of Japan's IT Industry and the Resurgence of Silicon Valley," The Review of Economics and Statistics, MIT Press, vol. 95(3), pages 757-775, July.

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Working Paper: Going Soft: How the Rise of Software Based Innovation Led to the Decline of Japan's IT Industry and the Resurgence of Silicon Valley (2011)
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