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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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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. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  2. Philippe Aghion & Peter Howitt, 1990. "A Model of Growth Through Creative Destruction," NBER Working Papers 3223, National Bureau of Economic Research, Inc.
  3. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: An Inverted-U Relationship," The Quarterly Journal of Economics, MIT Press, vol. 120(2), pages 701-728, May.
  4. 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.
  5. Klette, Tor Jakob, 1999. "Market Power, Scale Economies and Productivity: Estimates from a Panel of Establishment Data," Journal of Industrial Economics, Wiley Blackwell, vol. 47(4), pages 451-76, December.
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  7. Tor Jakob Klette & Zvi Griliches, 1994. "The Inconsistency of Common Scales Estimators when Output Prices are Unobserved and Endogenous," Discussion Papers 127, Research Department of Statistics Norway.
  8. Zvi Griliches, 1991. "The Search for R&D Spillovers," NBER Working Papers 3768, National Bureau of Economic Research, Inc.
  9. Keller, Wolfgang, 1997. "How trade patterns and technology flows affect productivity growth," Policy Research Working Paper Series 1831, The World Bank.
  10. Keller, W., 1997. "Trade and the Transmission of Technology," Working papers 9620r, Wisconsin Madison - Social Systems.
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  16. Benoît Mulkay & Bronwyn H, Hall & Jacques Mairesse, 2000. "Firm Level Investment and R&D in France and the United States : A Comparison," Working Papers 2000-49, Centre de Recherche en Economie et Statistique.
  17. Kraft, Kornelius, 1989. "Market Structure, Firm Characteristics and Innovative Activity," Journal of Industrial Economics, Wiley Blackwell, vol. 37(3), pages 329-36, March.
  18. Richard Blundell & Rachel Griffith & John Van Reenen, 1994. "Dynamic count data models of technological innovation," IFS Working Papers W94/10, Institute for Fiscal Studies.
  19. Cohen, Wesley M & Levinthal, Daniel A, 1989. "Innovation and Learning: The Two Faces of R&D," Economic Journal, Royal Economic Society, vol. 99(397), pages 569-96, September.
  20. Paul Romer, 1989. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc.
  21. Wolfgang Keller, 1997. "Technology Flows Between Industries: Identification and Productivity Effects," Economic Systems Research, Taylor & Francis Journals, vol. 9(2), pages 213-219.
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Citations

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Cited by:
  1. Lundborg, Per, 2005. "Wage Fairness, Growth and the Utilization of R&D Workers," Working Paper Series 206, Trade Union Institute for Economic Research.
  2. 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.
  3. Ivan Ledezma, 2008. "Defensive strategies in the quality ladders," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00586709, HAL.
  4. repec:hal:wpaper:halshs-00586709 is not listed on IDEAS
  5. Chiara Peroni & Ivete Ferreira, 2012. "Competition and Innovation in Luxembourg," Journal of Industry, Competition and Trade, Springer, vol. 12(1), pages 93-117, March.
  6. 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.
  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. 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.
  9. 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.
  10. Yanrui Wu, 2012. "R&D Behaviour in Chinese Firms," Economics Discussion / Working Papers 12-26, The University of Western Australia, Department of Economics.
  11. 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.
  12. Lundborg, Per, 2005. "Wage Theories for the Swedish Labour Market," Working Paper Series 207, Trade Union Institute for Economic Research.

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