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Is There Really an Inverted U-shaped Relation Between Competition and R&D?

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Abstract

We test whether predictions of the Aghion and Howitt (2004) model are supported by firm level data. In particular, we analyze if there is an inverted U-shaped relation between competition and R&D. Results show that the inverted U-shaped relation is supported by the Herfindahl index but not by the price cost margin. Using the Herfindahl index results suggest that breaking up monopolies increases R&D while further increases in competition most likely leads to reduced R&D. Comparing different estimators, we find that time-series based estimators typically result in less clear-cut results, probably driven by a lack of time series variation in measures of competition.

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File URL: http://swopec.hhs.se/eijswp/papers/eijswp0207.pdf
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Bibliographic Info

Paper provided by The European Institute of Japanese Studies in its series EIJS Working Paper Series with number 207.

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Length: 25 pages
Date of creation: 01 Feb 2005
Date of revision:
Handle: RePEc:hhs:eijswp:0207

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Postal: The European Institute of Japanese Studies, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden
Phone: +46-8-7369360
Fax: +46-8-313017
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Web page: http://www.hhs.se/eijs/
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Keywords: R&D; competition; firm size; spillovers;

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References

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  1. Wolfgang Keller, 1997. "Technology Flows Between Industries: Identification and Productivity Effects," Economic Systems Research, Taylor & Francis Journals, vol. 9(2), pages 213-219.
  2. Edward E. Leamer & James Levinsohn, 1994. "International Trade Theory: The Evidence," NBER Working Papers 4940, National Bureau of Economic Research, Inc.
  3. Wolfgang Keller, 1999. "How Trade Patterns and Technology Flows Affect Productivity Growth," NBER Working Papers 6990, National Bureau of Economic Research, Inc.
  4. Tor Jakob Klette & Zvi Griliches, 1992. "The Inconsistency of Common Scale Estimators When Output Prices Are Unobserved and Engogenous," NBER Working Papers 4026, National Bureau of Economic Research, Inc.
  5. Philippe Aghion & Nicholas Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2002. "Competition and Innovation: An Inverted U Relationship," NBER Working Papers 9269, National Bureau of Economic Research, Inc.
  6. Wolfgang Keller, 1996. "Trade and the Transmission of Technology," Development and Comp Systems 9609001, EconWPA.
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  10. Benoit Mulkay & Bronwyn H. Hall & Jacques Mairesse, 2000. "Firm Level Investment and R&D in France and the United States: A Comparison," NBER Working Papers 8038, National Bureau of Economic Research, Inc.
  11. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-51, March.
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  17. Zvi Griliches, 1991. "The Search for R&D Spillovers," NBER Working Papers 3768, National Bureau of Economic Research, Inc.
  18. Jones, Charles I, 1995. "R&D-Based Models of Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 759-84, August.
  19. S. W. Davies & Paul A. Geroski, 2000. "Changes In Concentration, Turbulence, And The Dynamics Of Market Shares," The Review of Economics and Statistics, MIT Press, vol. 79(3), pages 383-391, August.
  20. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August.
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Citations

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Cited by:
  1. Lundborg, Per, 2005. "Wage Theories for the Swedish Labour Market," Working Paper Series 207, Trade Union Institute for Economic Research.
  2. Gustavsson Tingvall, Patrik & Karpaty, Patrik, 2008. "Service-sector competition, innovation and R&D," Working Paper Series in Economics and Finance 702, Stockholm School of Economics.
  3. Yanrui Wu, 2012. "R&D Behaviour in Chinese Firms," Economics Discussion / Working Papers 12-26, The University of Western Australia, Department of Economics.
  4. Márquez-Ramos, Laura & Martínez-Zarzoso, Inmaculada, 2009. "The effect of technological innovation on international trade: a nonlinear approach," Economics Discussion Papers 2009-24, Kiel Institute for the World Economy.
  5. Lundborg, Per, 2005. "Wage Fairness, Growth and the Utilization of R&D Workers," Working Paper Series 206, Trade Union Institute for Economic Research.
  6. Tom Holden, 2012. "Medium-frequency cycles and the remarkable near trend-stationarity of output," School of Economics Discussion Papers 1412, School of Economics, University of Surrey.
  7. YAGI Michiyuki & MANAGI Shunsuke, 2013. "Competition and Innovation: An inverted-U relationship using Japanese industry data," Discussion papers 13062, Research Institute of Economy, Trade and Industry (RIETI).
  8. Ledezma, Ivan, 2013. "Defensive Strategies in the Quality Ladders," Economics Papers from University Paris Dauphine 123456789/4966, Paris Dauphine University.
  9. Richard Harris & John Moffat, 2011. "R&D, innovation and exporting," LSE Research Online Documents on Economics 33593, London School of Economics and Political Science, LSE Library.
  10. Márquez-Ramos, Laura & Martínez-Zarzoso, Inmaculada, 2010. "The effect of technological innovation on international trade," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 4(11), pages 1-37.
  11. Chiara Peroni & Ivete Ferreira, 2012. "Competition and Innovation in Luxembourg," Journal of Industry, Competition and Trade, Springer, vol. 12(1), pages 93-117, March.
  12. repec:hal:wpaper:halshs-00586709 is not listed on IDEAS

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