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Competition and Innovation - Microeconometric Evidence using Finnish Data

  • Juha Kilponen
  • Torsten Santavirta

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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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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  1. Harris, Christopher & Howitt, Peter & Vickers, John & Aghion, Philippe, 2001. "Competition, Imitation and Growth with Step-by-Step Innovation," Scholarly Articles 12375013, Harvard University Department of Economics.
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  11. Boone, Jan, 2000. "Competition," CEPR Discussion Papers 2636, C.E.P.R. Discussion Papers.
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  20. repec:fth:harver:1473 is not listed on IDEAS
  21. Jean O. Lanjouw & Mark Schankerman, 1999. "The Quality of Ideas: Measuring Innovation with Multiple Indicators," NBER Working Papers 7345, National Bureau of Economic Research, Inc.
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  24. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521816632, November.
  25. Nicholas Bloom & John Van Reenen, 2000. "Patents, productivity and market value: evidence from a panel of UK firms," IFS Working Papers W00/21, Institute for Fiscal Studies.
  26. Vives, Xavier, 2006. "Innovation and competitive pressure," IESE Research Papers D/634, IESE Business School.
  27. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: an Inverted-U Relationship," The Quarterly Journal of Economics, Oxford University Press, vol. 120(2), pages 701-728.
  28. Adam B. Jaffe & Manuel Trajtenberg & Michael S. Fogarty, 2000. "The Meaning of Patent Citations: Report on the NBER/Case-Western Reserve Survey of Patentees," NBER Working Papers 7631, National Bureau of Economic Research, Inc.
  29. Aghion, Philippe & Harris, Christopher & Vickers, John, 1997. "Competition and growth with step-by-step innovation: An example," European Economic Review, Elsevier, vol. 41(3-5), pages 771-782, April.
  30. Maliranta, Mika, . "Micro Level Dynamics of Productivity Growth. An Empirical Analysis of the Great Leap in Finnish Manufacturing Productivity in 1975-2000," ETLA A, The Research Institute of the Finnish Economy, number 38, Enero-Jun.
  31. 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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