Competition and Innovation: Pushing Productivity Up or Down?
AbstractThis paper examines the relationship between competition, innovation and productivity for the Netherlands. We use industry level data aggregated from micro data as well as moments from firm level data for the period 1996-2006. We match innovation data from Community Innovation Survey with accounting data to link innovative activities with performance at the industry level. We find strong evidence for a positive impact of competition on Total Factor Productivity (TFP) at the industry level. Competition directly increases TFP by reducing X-ineficiencies and removing inefficient forms from markets, but also through more innovation. Nonetheless, there exists an inverted U- curve between competition and innovation for the Netherlands, at least for manufacturing industries. Yet, our results indicate that a negative effect of competition on productivity through lower innovation expenditures arises only at very high levels of competition.
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Bibliographic InfoPaper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2010-52.
Date of creation: 2010
Date of revision:
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Web page: http://center.uvt.nl
competition; innovation; profit elasticity; productivity;
Find related papers by JEL classification:
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-08-21 (All new papers)
- NEP-BEC-2010-08-21 (Business Economics)
- NEP-COM-2010-08-21 (Industrial Competition)
- NEP-CSE-2010-08-21 (Economics of Strategic Management)
- NEP-EFF-2010-08-21 (Efficiency & Productivity)
- NEP-ENT-2010-08-21 (Entrepreneurship)
- NEP-IND-2010-08-21 (Industrial Organization)
- NEP-INO-2010-08-21 (Innovation)
- NEP-SBM-2010-08-21 (Small Business Management)
- NEP-TID-2010-08-21 (Technology & Industrial Dynamics)
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