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Competition and innovation with selective exit: an inverted-U shape relationship?

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Listed:
  • Pilar BeneitoBy
  • María Engracia Rochina-Barrachina
  • Amparo Sanchis

Abstract

This paper extends the approach of the inverted-U relationship between competition and innovation at the industry level introduced by Aghion and coauthors. We use data of Spanish manufacturing firms from the Survey of Business Strategies (ESEE) spanning 1990–2006, as well as external information on patents from the European Patent Office and US Patent Office. Instead of an inverted-U shape, we obtain an unambiguous positive relationship between competition and patents. To explain this positive relationship, we modify their theoretical model to introduce the possibility of inefficient firms facing the threat of exit when competition intensifies. The modified model may explain both a positive and an inverted-U relationship between competition and innovation. The estimated results also support the theoretical conjecture that competition induces firms’ exit that, in turn, explains our empirical finding of a negative relationship between competition and within-industry technological gap.

Suggested Citation

  • Pilar BeneitoBy & María Engracia Rochina-Barrachina & Amparo Sanchis, 2017. "Competition and innovation with selective exit: an inverted-U shape relationship?," Oxford Economic Papers, Oxford University Press, vol. 69(4), pages 1032-1053.
  • Handle: RePEc:oup:oxecpp:v:69:y:2017:i:4:p:1032-1053.
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    File URL: http://hdl.handle.net/10.1093/oep/gpw080
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    References listed on IDEAS

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    Cited by:

    1. Dolores Añón Higón & Juan A. Mañez & María E. Rochina-Barrachina & A. Sanchis & Juan A. Sanchis, 2017. "The impact of the Great Recession on TFP convergence among EU countries," Working Papers 1702, Department of Applied Economics II, Universidad de Valencia.

    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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