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Competition and Innovation - Microeconometric Evidence using Finnish Data

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  • Juha Kilponen
  • Torsten Santavirta

Abstract

The relationship between product market competition (PMC) and innovative activity has attracted the attention of many economists lately. In this study we elaborate the theory of Aghion et al. (1997, 2001) of an inverted-U relationship between competition and innovations. We provide a theoretical prediction of a complementary relationship between the incentive effects of PMC and R&D subsidies. We empirically test our complementarity prediction and that of an inverted-U relationship using Finnish firm level data. Our results suggest that the inverted-U relationship is fairly robust to all our innovation measures. We also find that the inverted-U relationship tends to be steeper when also direct R&D subsidies are considered. This result suggests that there exists complementarity between competition and R&D subsidies.

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Bibliographic Info

Paper provided by Government Institute for Economic Research Finland (VATT) in its series Research Reports with number 113.

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Date of creation: 15 Nov 2004
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Handle: RePEc:fer:resrep:113

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Keywords: Product market competition; Innovation; R&D subsidies;

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References

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  2. Nickell, S.J., 1993. "Competition and Crporate Performance," Economics Series Working Papers 99155, University of Oxford, Department of Economics.
  3. Mathias Dewatripont & Philippe Aghion & Patrick Rey, 1999. "Competition, financial discipline and growth," ULB Institutional Repository 2013/9619, ULB -- Universite Libre de Bruxelles.
  4. Ariel Pakes & Mark Schankerman, 1979. "The Rate of Obsolescence Of Knowledge, Research Gestation Lags, and the Private Rate of Return to Research Resources," NBER Working Papers 0346, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Valkonen, Laura, 2006. "Deregulation as a Means to Increase Competition and Productivity," Discussion Papers 1014, The Research Institute of the Finnish Economy.
  2. Ad van Riet & Moreno Roma, 2006. "Competition, productivity and prices in the euro area services sector," Occasional Paper Series 44, European Central Bank.
  3. Juha Kilponen & Helvi Kinnunen & Antti Ripatti, 2006. "Demographic Uncertainty and Labour Market Imperfections in Small Open Economy," Computing in Economics and Finance 2006 227, Society for Computational Economics.
  4. Kilponen , Juha & Kinnunen , Helvi & Ripatti , Antti, 2006. "Population ageing in a small open economy – some policy experiments with a tractable general equilibrium model," Research Discussion Papers 28/2006, Bank of Finland.

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