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The give and take of technology

Changes in U.S. imports and exports of intellectual property

Posted on August 12, 2019

The U.S. creates many technological innovations that the rest of the world wants to use. The FRED graph above tracks how much technology the U.S. exported to the rest of the world from 2002 to 2018 (blue line), as measured by payments the world made for the use of U.S. intellectual property (IP). These payments, in the form of royalties and licensing fees, increased from $67 billion to about $118 billion, showing that the U.S. has substantially increased the knowledge it shares globally.

The U.S. also seeks out technology it doesn’t produce at home. So our graph also displays what the U.S. imported from the rest of the world (red line), as measured by the royalty payments the U.S. made to all other countries for the use of their IP. Take care to connect the exports with the left axis and the imports with the right axis, and you can see that the U.S. transfers much more knowledge than it receives from the rest of the world. But the graph also reveals some finer points.

  1. During the Great Recession of 2008-09, real U.S. exports of IP decreased slightly but real U.S. imports of IP kept increasing. In fact, the U.S. has been on a largely continuous trajectory of technology imports, even during periods when its technology exports have declined.
  2. The U.S. has imported IP from the rest of the world at a faster pace than it has exported it. During 2002-2018, real royalties from U.S. technology exports increased by 75%, but real royalties from U.S. technology imports increased by 113%. The last four years of the sample are largely responsible for this faster pace: Since 2015, royalties from U.S. technology imports have grown by 30%, considerably faster than the -2.5% rate for exports.

So, is foreign technology increasing its contribution to U.S. innovation?

Data from the OECD provide some highlights: The main contributors of technology transfer to the U.S. are the European Union and Japan, accounting for 45% and 21% of payments, respectively, in 2017. Although a much smaller contributor, China has increased its technology transfer to the U.S. In 2002, China’s share of U.S. royalties for foreign IP was 0.1%; by 2017, its share had increased to almost 2%—which could be an indication China will become one of the leaders in global innovation and knowledge sharing.

How this graph was created: Search for and select the annual series “Real exports of services: Royalties and license fees”; from the “Edit Graph” panel, use the “Add Line” option to search for and select the annual series “Real imports of services: Royalties and license fees.” In the “Format” tab, for Line 2, click “Right” under the “Y-Axis position” label to shift its y-axis to the right side of the graph.

Suggested by Makenzie Peake and Ana Maria Santacreu.

View on FRED, series used in this post: B684RX1Q020SBEA, B908RX1Q020SBEA

Capital’s gain is lately labour’s loss

The global decline in the labour share of income

Posted on August 8, 2019

The GDP of a country reflects, among other things, the total payments to all factors of production. For a long time, the share of payments to labour* relative to total payments to all factors of production was relatively stable. In recent decades, the share of payments to labour has been trending down in many countries, which FRED can help us illustrate.

The first graph shows that the share of labour compensation in GDP has been declining for several countries around the world. In the U.S., this share has declined by 5% between 1975 and 2017. The decline in other countries is even greater, with the largest occurring in Canada, at almost 11%.

Researchers Karabarbounis and Neiman recently argued that there’s an association between the declining labour share and the declining price of capital goods, such as equipment. They show that, if the elasticity of substitution between capital and labour is larger than one (that is, if it’s easy to switch from labour to capital), then a decline in the price of capital will increase the use of capital in production—thus, increasing capital’s income share. This move away from labour has led to the decline of its global share of income. The authors estimate that the declining price of investment goods can explain nearly half of the decline in global labour share.

And, right on cue, the graph below shows this decline in the price of investment goods relative to the price of consumption in the U.S. Between 1947 and 2016, the relative price of investment goods fell by almost 78%. This decline in relative prices could be the result of several factors, such as a reduction of trade barriers that facilitated the exchange of capital goods across borders and technological improvements that led to greater efficiency in the production of those capital goods.

How these graphs were created: For the first graph, search for and select the series “Share of Labour Compensation in GDP at Current National Prices for United States” and click “Add to Graph.” Then, in the “Edit Graph” menu, under the “Add Line” tab, search for and select the series “Share of Labour Compensation in GDP at Current National Prices for Germany” (and then do the same for Canada, Japan, and France) and click “Add data series.” For the second graph, just search for and select “Relative Price of Investment Goods” and click “Add to Graph.”

* In deference to the University of Groningen, one of the sources of the data, we use their preferred, British spelling of labour.

Suggested by Asha Bharadwaj and Maximiliano Dvorkin.

View on FRED, series used in this post: LABSHPCAA156NRUG, LABSHPDEA156NRUG, LABSHPFRA156NRUG, LABSHPJPA156NRUG, LABSHPUSA156NRUG, PIRIC

Live by the barrel, die by the barrel

Connections between oil production, oil dependency, and economic growth

Posted on August 5, 2019

In every introductory macroeconomics course, oil is used as the classic example of a negative price shock. Professors tend to discuss the 1973 oil price shock triggered by the Arab-Israeli conflict and the 1979 oil price shock caused by the Iranian Revolution as reasons for rising inflation and falling global output—connecting these shocks to models about investment and aggregate supply and demand. More recent literature, including this presentation by St. Louis Fed President James Bullard, indicates that oil prices can sometimes be interpreted as a proxy for demand. But what’s the impact of oil supply for the consumers in oil-producing countries? We can use FRED to plot crude oil production versus GDP growth in oil-producing countries to get at least a first idea of just how oil-dependent a country might be.

For the United States, the relative importance of oil to industrial production (which is now less than 20% of the economy) is typically between 7% and 15%. Thus, in the graph above, the correlation between oil production and GDP growth per capita is practically negligible. In fact, the correlation is slightly negative. It’s unlikely that changes in oil production have much of an effect on aggregate economic activity.

But the relationship between oil production and GDP growth per capita is much stronger for countries that have more oil-dependent economies. For example, the correlation coefficient for this measure is 0.51 for the United Arab Emirates, 0.76 for Iran, and 0.93 for Iraq. (The closer this coefficient is to 1.0, the stronger the positive correlation.) The scatter plot below indicates the strength of this positive relationship. For these countries, aggregate well-being could be largely influenced by how much oil the country produces—which is why economic diversification is key to building a national economy less susceptible to oil or other shocks.

How these graphs were created: For the first graph, search for and select “constant GDP per capital United States” and click “Add to Graph.” From the “Edit Graph” panel, use the “Add a Line” feature to search for and select “industrial production crude oil”; change the units to “percent change from year ago” in the “Units” dropdown menu and click “Copy to All.” In the “Format” tab, change the line type to “Scatter Plot.” For the second graph, search for and select “constant GDP per capita United Arab Emirates” and click “Add to Graph.” From the “Edit Graph” panel, use the “Add a Line” feature to search for and select “crude oil production United Arab Emirates.” Repeat this process for each individual country. Change the units to “percent change from year ago” in the “Units” dropdown menu and click “Copy to All.” Change the line graph to a scatter plot by using the “Format” tab and changing “Graph type” entry to “Scatter” and pick different colors as needed.

Suggested by Darren Chang and Christian Zimmermann.

View on FRED, series used in this post: IPG211111CN, NYGDPPCAPKDUSA


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