NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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 G. Branstetter, Matej Drev

NBER Working Paper No. 16156
Issued in July 2010
NBER Program(s):   ITI   PR

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.

download in pdf format
   (638 K)

email paper

This paper is available as PDF (638 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w16156

Published: 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. citation courtesy of

Users who downloaded this paper also downloaded these:
Arora and Bagde w16167 Human capital and the Indian software industry
Arora and Gambardella w10538 The Globalization of the Software Industry: Perspectives and Opportunities for Developed and Developing Countries
Angeletos, Lorenzoni, and Pavan w13475 Wall Street and Silicon Valley: A Delicate Interaction
Hatzius, Hooper, Mishkin, Schoenholtz, and Watson w16150 Financial Conditions Indexes: A Fresh Look after the Financial Crisis
Branstetter and Nakamura w9438 Is Japan's Innovative Capacity in Decline?
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us