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NBER WORKING PAPER SERIES

INNOVATION AND DIFFUSION

Bronwyn H. Hall

Working Paper 10212

http://www.nber.org/papers/w10212

NATIONAL BUREAU OF ECONOMIC RESEARCH

1050 Massachusetts Avenue

Cambridge, MA 02138

January 2004

Forthcoming in Fagerberg, Jan, David C. Mowery, and Richard R. Nelson, Handbook on Innovation, Oxford:

Oxford University Press. The views expressed herein are those of the authors and not necessarily those of

the National Bureau of Economic Research.

©2003 by Bronwyn H. Hall. All rights reserved. Short sections of text, not to exceed two paragraphs, may

be quoted without explicit permission provided that full credit, including © notice, is given to the source.

Innovation and Diffusion

Bronwyn H. Hall

NBER Working Paper No. 10212

January 2004

JEL No. O3, L1

ABSTRACT

The contribution made by innovation and new technologies to economic growth and welfare is

largely determined by the rate and manner by which innovations diffuse throughout the relevant

population, but this topic has been a somewhat neglected one in the economics of innovation. This

chapter, written for a handbook on innovation, provides a historical and comparative perspective on

diffusion that looks at the broad determinants of diffusion, economic, social, and institutional,

viewed from a microeconomic perspective. A framework for thinking about these determinants is

presented along with a brief nontechnical review of modeling strategies used in different social

scientific literatures. It concludes with a discussion of gaps in our understanding and potential future

research questions.

Bronwyn H. Hall

Department of Economics

549 Evans Hall, #3880

University of California-Berkeley

Berkeley, CA 94720-3880

and NBER

bhhall@econ.berkeley.edu

Hall on Diffusion December 2003

2

Innovation and Diffusion

Bronwyn H. Hall1

1. Introduction

In 1953, a young female Macaque monkey in the south of Japan washed a muddy

sweet potato in a stream before eating it. This obvious improvement in food preparation was

imitated quickly by other monkeys and in less than 10 years it became the norm in her

immediate group; by 1983, the method had diffused completely. In 1956, the same monkey

innovated again, inventing a technique in which handfuls of mixed sand and wheat grains

were cast upon the sea, so that the floating cereal could be skimmed from the surface. Again,

by 1983, this method of gleaning wheat had diffused almost completely throughout the local

populations of Macaques.2 Besides the obvious fact that humankind does not have a

monopoly on innovation, these examples illustrate a couple of things about the diffusion of

innovations: first, when they are clearly better than what went before, new ideas of how to do

things will usually spread via a “learning by observing” process, and second, the process can

take some time; in these cases it took thirty years, and the life cycle of the Macaque monkey

is somewhat shorter than ours (Kawai, Watanabe, and Mori 1992).

Turning to the world of humans, it is safe to say that without diffusion, innovation

would have little social or economic impact. In the study of innovation, the word diffusion is

commonly used to describe the process by which individuals and firms in a society/economy

adopt a new technology, or replace an older technology with a newer. But diffusion is not

only the means by which innovations become useful by being spread throughout a

1 University of California at Berkeley, Scuola Sant’anna Superiore Pisa, NBER, and the Institute of

Fiscal Studies, London. I am grateful to Beethika Khan for contributing some of the literature review that lies

behind the issues discussed in this paper, and other contributors to this volume, especially my discussants,

Kristine Bruland, John Cantwell, and Ove Granstrand, for their very helpful comments. Finally I owe an

immense debt to the editors of this volume (Jan Fagerberg, David Mowery, and Richard Nelson) for their

careful reading of multiple drafts of this chapter.

2 I am grateful to Chris E. Hall for calling this example to my attention. It is described in McGrew

(1998), where a more complete set of references to the anthropological literature is given. A third feature of this

Hall on Diffusion December 2003

3

population, it is also an intrinsic part of the innovation process, as learning, imitation, and

feedback effects which arise during the

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