28 March 2017

I Know that Correlation is not Causation

Historical patent data

Patents vs economic growth
But it does appear that there is a negative correlation between the number of patents and economic growth:
Recently I discussed a paper by David Autor, David Dorn, Gordon Hanson, Gary P. Pisano and Pian Shu. The paper noted that as competition from China increased, innovation by US firms, measured by patent output, decreased. I believe the result, but started to wonder… are patents a good measure of innovation? Do patents drive economic growth?

I don’t know how to measure innovation, but I can look at the relationship between patents and economic growth. We being by looking at patents per capita. I found patent data going back to 1840, and population to 1850. The graph below shows patents per capita beginning in 1850. (All data sources provided at the end of this post.)


If it kind of looks to you like patents are not driving economic growth, well, it kind of looks like that to me too. In fact, if anything, the lines seem to be more negatively than positively correlated. In years where there are more patents, the subsequent growth rate in real GDP for capita over a ten year period seems to go down. Conversely, fewer patents in one year seem to be associated with more growth over the next ten years.
This is not a surprise.

Patents are increasingly an instrument for extracting monopoly rents with no meaning productive activity, as such they are increasingly parasitic.


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