Product and Process Innovation in the U.S. from 1980-2015 and Over the Firm’s Life Cycle

This paper uses machine learning techniques to classify patent claims as product or process innovations and documents that the overall process share of innovation in the United States was on a secular decline from 1980 to 2015. The reallocation of patenting activity from the chemical to the computer & communication category explains much of the declining process share from 1980 to 2000. This paper rules out the rise of China as an explanation for the declining process share from 2000 to 2015. Instead, this paper finds evidence that a large contributor to the decline in the process share from 2000 to 2015 is patents in the semiconductor and electrical circuit topics becoming less process focused. This paper finds that the process share is low at the beginning of a firm’s product life cycle, peaks in the middle, before plateauing at an intermediate level at the end of the life cycle. Firm size is positively associated with the process share of innovation. These relationships between life cycle, size, and the process share of innovation are not present for alternative classifications of product and process patents.

Industrial and Corporate Change