NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Matej Drev

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Working Papers

July 2010Going Soft: How the Rise of Software Based Innovation Led to the Decline of Japan's IT Industry and the Resurgence of Silicon Valley
with Ashish Arora, Lee G. Branstetter: w16156
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 m...

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