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Service-sector competition, innovation and R&D

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  • Patrik Gustavsson Tingvall
  • Patrik Karpaty

Abstract

The central prediction of the Aghion, Bloom, Blundell and Howitt model is an inverted U-shaped relationship between innovation and competition. The model is built on the assumption of a product market and has not yet been tested on the service sector. Using detailed firm-level data on Swedish service-sector firms, we find evidence of an inverse U-shaped relationship for exporting service-sector firms. A further breakdown of innovation expenditures shows that the inverse U-shaped pattern holds for intramural R&D and training, but not for extramural R&D. Finally, the results indicate that as competition increases, small firms tend to seek strategic alliances with competitors, whereas large firms tend to reduce collaboration with competitors. The behavior of large firms can partly be due to their superior capacity to handle innovation projects internally, which will become more important if increased competition results in higher pay-offs to innovation.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Economics of Innovation and New Technology.

Volume (Year): 20 (2011)
Issue (Month): 1 ()
Pages: 63-88

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Handle: RePEc:taf:ecinnt:v:20:y:2011:i:1:p:63-88

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Keywords: R&D; innovation; competition; service sector; CIS data;

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References

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  1. Gustavsson Tingvall, Patrik & Poldahl, Andreas, 2005. "Is There Really an Inverted U-shaped Relation Between Competition and R&D?," EIJS Working Paper Series 207, The European Institute of Japanese Studies.
  2. Hipp, Christiane & Grupp, Hariolf, 2005. "Innovation in the service sector: The demand for service-specific innovation measurement concepts and typologies," Research Policy, Elsevier, vol. 34(4), pages 517-535, May.
  3. Keller, W., 1997. "Trade and the Transmission of Technology," Working papers 9620r, Wisconsin Madison - Social Systems.
  4. Rachel Griffith & Stephen Redding & John Van Reenen, 2000. "Mapping the two faces of R&D : productivity growth in a panel of OECD industries," LSE Research Online Documents on Economics 784, London School of Economics and Political Science, LSE Library.
  5. Geroski, P A, 1990. "Innovation, Technological Opportunity, and Market Structure," Oxford Economic Papers, Oxford University Press, vol. 42(3), pages 586-602, July.
  6. Howitt, Peter & Griffith, Rachel & Aghion, Philippe & Blundell, Richard & Bloom, Nick, 2005. "Competition and Innovation: An Inverted-U Relationship," Scholarly Articles 4481507, Harvard University Department of Economics.
  7. Stephen Nickell, 1993. "Competition and Corporate Performance," CEP Discussion Papers dp0182, Centre for Economic Performance, LSE.
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  9. Jan Boone, 2008. "A New Way to Measure Competition," Economic Journal, Royal Economic Society, vol. 118(531), pages 1245-1261, 08.
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  11. John Scott, 1984. "Firm versus Industry Variability in R&D Intensity," NBER Chapters, in: R & D, Patents, and Productivity, pages 233-248 National Bureau of Economic Research, Inc.
  12. Kraft, Kornelius, 1989. "Market Structure, Firm Characteristics and Innovative Activity," Journal of Industrial Economics, Wiley Blackwell, vol. 37(3), pages 329-36, March.
  13. Kilponen , Juha & Santavirta, Torsten, 2007. "When do R&D subsidies boost innovation? Revisiting the inverted U-shape," Research Discussion Papers 10/2007, Bank of Finland.
  14. Reinganum, Jennifer F., 1989. "The timing of innovation: Research, development, and diffusion," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 14, pages 849-908 Elsevier.
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Citations

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Cited by:
  1. Tingvall, Patrik & Karpaty, Patrik, 2011. "Offshoring and Home Country R&D," Ratio Working Papers 180, The Ratio Institute.
  2. Bergman, Karin & Ejermo, Olof, 2011. "Swedish Business R&D and its Export Dependence," CIRCLE Electronic Working Papers 2011/5, Lund University, CIRCLE - Center for Innovation, Research and Competences in the Learning Economy.
  3. Karpaty, Patrik & Gustavsson Tingvall, Patrik, 2011. "Offshoring of Services and Corruption: Do Firms Escape Corrupt Countries?," Working Papers 2011:2, Örebro University, School of Business, revised 28 May 2012.
  4. Michael Polder & Erik Veldhuizen, 2012. "Innovation and Competition in the Netherlands: Testing the Inverted-U for Industries and Firms," Journal of Industry, Competition and Trade, Springer, vol. 12(1), pages 67-91, March.

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