Professor of Economics and Public Policy (Joint appointment with the Social and Decision Sciences department)
Lee Branstetter joined the Heinz School faculty in 2006 as a tenured associate professor. He has a joint appointment with the Department of Social and Decision Sciences (SDS). Branstetter is also a research associate of the National Bureau of Economic Research and nonresident senior fellow at the Peterson Institute for International Economics. From 2011-2012, he served as the Senior Economist for International Trade and Investment for the President's Council of Economic Advisors. Prior to coming to Carnegie Mellon, he was the Daniel J. Stanton Associate Professor of Business and the Director of the International Business Program at Columbia Business School. Branstetter has also taught at the University of California, Davis, where he was the Director of the East Asian Studies Program, and at Dartmouth College. He has served as a consultant to the OECD Science and Technology Directorate, the Advanced Technology Program of the U.S. Department of Commerce, and the World Bank. In recent years, Branstetter has been a research fellow of the Keio University Global Security Research Institute and a visiting fellow of the Research Institute of Economy, Trade, and Industry in Japan. Branstetter holds a B.A. in Economics and Mathematical Methods in the Social Sciences (MMSS) from Northwestern University, and he earned his Ph.D. in Economics at Harvard in 1996.
At Columbia Business School, Branstetter was awarded the Chazen Innovation Prize for innovative teaching in International Business. He was later appointed to the Daniel Stanton Associate Professorship in recognition of outstanding service, teaching, and scholarship. Branstetter was awarded an Abe Fellowship by the Social Science Research Council in 2001. At UC-Davis, Branstetter received the Thomas Mayer Distinguished Teaching Award from the Department of Economics. As a graduate student at Harvard, Branstetter received fellowships from the National Science Foundation, the Japan Foundation, the Sumner Slichter Fund, and the Reischauer Institute of Japanese Studies.
Branstetter's research interests include the economics of technological innovation, international economics, industrial organization, and economic growth in East Asia, with a particular focus on China and Japan. His papers span a wide range of topics, including the effects of patent laws on international technology transfer, the role of multinationals in the diffusion of technology across national boundaries, the impact of research consortia on the research productivity of participating firms, and the evolution of trade and investment policies in the People's Republic of China. His work has appeared in leading journals including the American Economic Review, the Quarterly Journal of Economics, the RAND Journal of Economics, and the Journal of International Economics.
"Do Entry Regulations Deter Entrepreneurship and Job Creation? Evidence from Recent Reforms in Portugal." Branstetter, L., Lima, F., Taylor, L., and Venancio, A., Economic Journal, vol. 124, June 2014, pp. 805-832.
"Facing the Climate Change Challenge in a Global Economy." Branstetter, L., and Pizer, W., in R. Feenstra and A. Taylor (eds.), Globalization in an Age of Crisis, 2014, NBER and University of Chicago Press.
"Going 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 (Duke) and Matej Drev (CMU). Review of Economics and Statistics, vol. 95, no. 3, July 2013, pp. 757-775.
"Intellectual Property Rights, Foreign Direct Investment, and Industrial Development," with Kamal Saggi (Vanderbilt). Economic Journal, vol. 121, no. 555, September 2011, pp. 1161-1191.
"Does Intellectual Property Rights Reform Spur Industrial Development?" with Raymond Fisman (Columbia), Fritz Foley (HBS), and Kamal Saggi (Vanderbilt). Journal of International Economics, vol. 83, Spring 2011, pp 27-36.
"China's Embrace of Globalization," with Nicholas Lardy (Institute for International Economics), in Loren Brandt and Thomas Rawski, (eds.), China's Economic Transition: Origins, Mechanisms, and Consequences, 2008, Cambridge University Press.
"Do Stronger Intellectual Property Rights Increase International Technology Transfer? Empirical Evidence from U.S. Firm-Level Data," with Raymond Fisman (Columbia) and Fritz Foley (HBS). Quarterly Journal of Economics, vol. 121, no. 1, pp. 321-349.
"When Do Research Consortia Work Well and Why? Evidence from Japanese Panel Data," with Mariko Sakakibara (UCLA), American Economic Review, vol. 92, no. 1, March 2002, pp. 143-159.
"Do Stronger Patents Induce More Innovation? Evidence from the 1988 Japanese Patent Law Reforms,"
with Mariko Sakakibara (UCLA), RAND Journal of Economics, vol. 32, no. 1, Spring 2001, pp. 77-100. Reprinted in R. Towse and R. Holzhauer, (eds.), The Economics of Intellectual Property, Edward Elgar Publishing Limited, 2001. Reprinted in K. Maskus, (ed.), The WTO, Intellectual Property, and the Knowledge Economy, a forthcoming volume in the series Critical Perspectives on the Global Trading System and the WTO, Edward Elgar Press.
"Is Foreign Direct Investment a Channel of Knowledge Spillovers: Evidence from Japan's FDI in the United States," Journal of International Economics, vol. 68, February 2006, pp. 325-344.
"Trade and Foreign Direct Investment in China: A Political Economy Approach," with Robert Feenstra (UC-Davis), Journal of International Economics, vol. 58, no. 2, December 2002, pp. 335-358.
"Are Knowledge Spillovers International or Intranational in Scope? Microeconometric Evidence from Japan and the United States,"Journal of International Economics, vol. 53, February 2001, pp. 53-79.
"Japanese Research Consortia: A Microeconometric Analysis of Industrial Policy," with Mariko Sakakibara (UCLA), Journal of Industrial Economics, vol. 46, no. 2, June 1998, pp. 207-233.
"Measuring the Impact of U.S. Research Consortia," with Mariko Sakakibara (UCLA), Managerial and Decision Economics, vol. 24, Spring 2003, pp. 51-69.
"Looking for International Knowledge Spillovers: A Review of the Literature with Suggestions for New Approaches," Annales d'Economie et de Statistique No. 49/50, 1998, pp. 517-540. Reprinted in D. Encaoua et. al., (eds.), The Economics and Econometrics of Innovation, Kluwer Academic Publishers, 2000.
"Do Stronger Patents Induce More Local Innovation?" Journal of International Economic Law, vol. 7, no. 2, 2004, pp. 359-370. Reprinted in Keith Maskus and Jerome Reichman, eds., International Public Goods and Transfer of Technology Under a Globalized Intellectual Property Regime, Cambridge University Press, 2005.
Ph.D., Economics, Harvard University
Killing the Golden Goose or Just Chasing it Around the Farmyard?: Generic Entry and the Incentives for Early-Stage Pharmaceutical Innovation
Over the last decade, generic penetration in the U.S. pharmaceutical market has increased substantially, providing significant consumer surplus gains. What impact has this rise in generic penetration had on the rate and direction of early stage pharmaceutical innovation? We explore this question using novel data sources and an empirical framework that models the flow of early-stage pharmaceutical innovations as a function of generic penetration, scientific opportunity, firm innovative capability, and additional controls. While the overall aggregative level of drug development activity has remained fairly stable, our estimates suggest a sizable, robust, negative relationship between generic penetration and early-stage pharmaceutical research activity within therapeutic markets. A 10% increase in generic penetration decreases early-stage innovations in the same market by 7.9%. This effect is weaker, but still economically and statistically significant in top therapeutic markets where an increase in generic penetration by 10% decreases the flow of early-stage innovations by 2.1%. Our estimated effects appear to vary across therapeutic classes in sensible ways, reflecting the differing degrees of substitution between generics and branded drugs in treating different diseases. Finally, we are able to document that with increasing generic penetration, firms in our sample are shifting their R&D activity to more biologics-based (large-molecule) products rather than chemicals-based (small-molecule) products as evidenced in their early-stage pipelines. We conclude by discussing the potential implications of our results for long-run consumer welfare, policy, and innovation.(Download)
Regulation and Welfare: Evidence from Paragraph IV Generic Entry in the Pharmaceutical Industry
With increasing frequency, generic drug manufacturers in the U.S. are able to challenge the monopoly status of patent-protected drugs before their patents expire. The legal foundation for these challenges is found in Paragraph IV of the Hatch-Waxman Act. If successful, these challenges generally lead to large market share losses for incumbents and sharp declines in average market prices. This paper estimates, for the first time, the welfare effects of accelerated generic entry via these challenges. Using aggregate brand level sales data for hypertension drugs in the U.S. we estimate demand using both a nested logit model and a random coefficients logit model in order to back out cumulated consumer surplus. We then undertake a counterfactual analysis, removing the stream of Paragraph IV facilitated generic products and recomputing consumer surplus in their absence, in order to estimate the consumer surplus gains associated with Paragraph IV entry. Results based on the more flexible random coefficients logit specification indicate that gains flowing to consumers over 2000-2008 as a result of this regulatory mechanism amount to around $41 billion. These gains come at the expense of producers who lose, approximately, $18 billion. This suggests that net short-term social gains stand at around $23 billion. Estimated net social gains are more than twice as large when we employ a nested logit approach over the same sample period. We also demonstrate significant cross-molecular substitution within the market and discuss the possible appropriation of consumer rents by the insurance industry. Policy and innovation implications are discussed.
Revise and Resubmit from the RAND Journal of Economics.(Download)
The Globalization of R&D: China, India, and the Rise of International Co-invention
Abstract: The rapid rise of China and India as innovating nations seems to contradict conventional views of the economic growth and development process. In standard models, the acquisition of innovative capacity in frontier technologies emerges as one of the final stages in a long development process. China and India are still poor, yet advanced nations are granting rapidly growing numbers of patents to inventors based in these countries. Our analysis of these patents shows that a majority of them are granted to local inventor teams working for foreign multinationals. An important fraction of these patents also incorporate direct intellectual inputs from researchers outside China or India, a trend that we characterize as "international co-invention." As such, the international patenting surge of China and India does not represent a challenge to traditional models of growth and development, so much as it represents a move toward an expanded international division of labor within global R&D networks.(Download)
The Incredible Shrinking Portuguese Firm
Using Portugal's extensive matched employer-employee data set, this paper documents an unusual feature of the Portuguese economy. For decades, the entire Portuguese firm size distribution has been shifting to the left. We argue in this paper that Portugal's shrinking firms are linked to the country's anemic growth and low productivity. We show that the shift in the Portuguese firm size distribution is not reflected in other advanced industrial economies for which we have been able to obtain comparable data. Careful attempts to account for expanding data coverage, a structural shift from manufacturing to services, and aggressive efforts to 'demonopolize' the Portuguese economy leave more than half of this shift unexplained by these factors. So, what does explain this shift? We argue that Portugal's uniquely strong protections for regular workers have played an important role. Drawing upon an emerging literature that attributes much of the productivity gap between advanced nations and developing nations to the misallocation of resources across firms in developing countries, we develop a theoretical model that shows how Portugal's labor market institutions could prevent more productive firms from reaching their optimal size, thereby constraining GDP per capita. Calibration exercises based on this model quantify the degree of labor market distortion consistent with the recent shifts in the Portuguese firm size distribution. These calibration exercises suggest quite substantial growth effects could arise if the distortions were lessened or abolished altogether.(Download)
Is Academic Science Driving a Surge in Industrial Innovation? Evidence From Patent Citations
What is driving the remarkable increase over the last decade in the propensity of patents to cite academic science? Does this trend indicate that stronger knowledge spillovers from academia have helped power the surge in innovative activity in the U.S. in the 1990s? This paper seeks to shed light on these questions by using a common empirical framework to assess the relative importance of various alternative hypotheses in explaining the growth in patent citations to science. Our analysis supports the notion that the nature of U.S. inventive activity has changed over the sample period, with an increased emphasis on the use of the knowledge generated by university-based scientists in later years. However, the concentration of patent-to-paper citation activity within what we call the "bio nexus" suggests that much of the contribution of knowledge spillovers from academia may belargely confined to bioscience-related inventions.(Download)