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

  • Poldahl, Andreas

    ()

    (FIEF)

  • Gustavsson Tingvall, Patrik

    (FIEF)

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 Trade Union Institute for Economic Research in its series Working Paper Series with number 204.

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Length: 25 pages
Date of creation: 27 Feb 2005
Date of revision:
Handle: RePEc:hhs:fiefwp:0204
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