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

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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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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  1. 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.
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  19. Geroski, P A, 1990. "Innovation, Technological Opportunity, and Market Structure," Oxford Economic Papers, Oxford University Press, vol. 42(3), pages 586-602, July.
  20. Wolfgang Keller, 1997. "Technology Flows Between Industries: Identification and Productivity Effects," Economic Systems Research, Taylor & Francis Journals, vol. 9(2), pages 213-219.
  21. 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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