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Competition and performance: The different roles of capital and labor

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  • ten Raa, Thijs
  • Mohnen, Pierre

Abstract

Neoclassical economists argue that competition promotes efficiency, but Schumpeter argues that it is monopoly rents that help entrepreneurs to invest in R&D. We investigate the overall effect of competition on total factor productivity growth (TFP) growth. We use rent, defined as the factor reward above its perfectly competitive value, as a negative measure of competition. Our main finding is that performance is positively associated with rents on capital but not with rents on labor. Neoclassical economists and Schumpeter may both be right, but the mechanisms differ.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 65 (2008)
Issue (Month): 3-4 (March)
Pages: 573-584

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Handle: RePEc:eee:jeborg:v:65:y:2008:i:3-4:p:573-584

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  1. Surendra Gera & Wulong Gu & Zhengxi Lin, 2001. "Technology and the demand for skills in Canada: an industry-level analysis," Canadian Journal of Economics, Canadian Economics Association, vol. 34(1), pages 132-148, February.
  2. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: An Inverted-U Relationship," The Quarterly Journal of Economics, MIT Press, vol. 120(2), pages 701-728, May.
  3. Edward Wolff, 2006. "The growth of information workers in the US economy, 1950-2000: the role of technological change, computerization, and structural change," Economic Systems Research, Taylor & Francis Journals, vol. 18(3), pages 221-255.
  4. Boone, Jan, 2001. "Intensity of competition and the incentive to innovate," International Journal of Industrial Organization, Elsevier, vol. 19(5), pages 705-726, April.
  5. Mohnen, Pierre & ten Raa, Thijs, 2000. "A general equilibrium analysis of the evolution of Canadian service productivity," Structural Change and Economic Dynamics, Elsevier, vol. 11(4), pages 491-506, December.
  6. Thijs Raa, 2005. "Aggregation of Productivity Indices: The Allocative Efficiency Correction," Journal of Productivity Analysis, Springer, vol. 24(2), pages 203-209, October.
  7. Thijs Raa & Pierre Mohnen, 2002. "Neoclassical Growth Accounting and Frontier Analysis: A Synthesis," Journal of Productivity Analysis, Springer, vol. 18(2), pages 111-128, September.
  8. Nickell, Stephen J, 1996. "Competition and Corporate Performance," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 724-46, August.
  9. Harris, Christopher & Howitt, Peter & Vickers, John & Aghion, Philippe, 2001. "Competition, Imitation and Growth with Step-by-Step Innovation," Scholarly Articles 12375013, Harvard University Department of Economics.
  10. Aghion, Philippe, et al, 2001. "Competition, Imitation and Growth with Step-by-Step Innovation," Review of Economic Studies, Wiley Blackwell, vol. 68(3), pages 467-92, July.
  11. Raa, T. ten, 2005. "Aggregation of productivity indices: The allocative efficiency correction," Open Access publications from Tilburg University urn:nbn:nl:ui:12-171684, Tilburg University.
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Cited by:
  1. Fischer, Justina A.V., 2012. "Globalization and Political Trust," MPRA Paper 36692, University Library of Munich, Germany.
  2. Thomas Strobel, 2012. "New evidence on the sources of EU countries’ productivity growth—industry growth differences from R&D and competition," Empirica, Springer, vol. 39(3), pages 293-325, August.
  3. Fischer, Justina A.V., 2012. "The choice of domestic policies in a globalized economy: Extended Version," MPRA Paper 37816, University Library of Munich, Germany.
  4. Wang, Vey & Lai, Chung-Hui, 2011. "Franchise fee, competition and economic growth," Economic Modelling, Elsevier, vol. 28(5), pages 2090-2099, September.
  5. Fischer, Justina A.V., 2012. "The choice of domestic policies in a globalized economy," MPRA Paper 36990, University Library of Munich, Germany.
  6. Antonio Amores & Thijs ten Raa, 2014. "Firm efficiency, industry performance and the economy: three-way decomposition with an application to Andalusia," Journal of Productivity Analysis, Springer, vol. 42(1), pages 25-34, August.

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