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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. Philippe Aghion & Peter Howitt, 1990. "A Model of Growth Through Creative Destruction," NBER Working Papers 3223, National Bureau of Economic Research, Inc.
  2. repec:att:wimass:9620 is not listed on IDEAS
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Citations

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Cited by:
  1. 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).
  2. Patrik Gustavsson Tingvall & Patrik Karpaty, 2011. "Service-sector competition, innovation and R&D," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 20(1), pages 63-88.
  3. Lundborg, Per, 2005. "Wage Theories for the Swedish Labour Market," Working Paper Series 207, Trade Union Institute for Economic Research.
  4. Ledezma, Ivan, 2013. "Defensive Strategies in the Quality Ladders," Economics Papers from University Paris Dauphine 123456789/4966, Paris Dauphine University.
  5. 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.
  6. 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.
  7. 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.
  8. Ivan Ledezma, 2008. "Defensive strategies in the quality ladders," Working Papers halshs-00586709, HAL.
  9. Lundborg, Per, 2005. "Wage Fairness, Growth and the Utilization of R&D Workers," Working Paper Series 206, Trade Union Institute for Economic Research.
  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. Yanrui Wu, 2012. "R&D Behaviour in Chinese Firms," Economics Discussion / Working Papers 12-26, The University of Western Australia, Department of Economics.
  12. Chiara Peroni & Ivete Ferreira, 2012. "Competition and Innovation in Luxembourg," Journal of Industry, Competition and Trade, Springer, vol. 12(1), pages 93-117, March.

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