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Product innovation by incumbent firms in developing economies : the roles of research and development expenditures, trade policy, and the investment climate

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  • Lederman, Daniel

Abstract

A model of firm innovation illustrates the effects of the threat of imitation and product varieties on a representative firm ' s decision to invest in research and development to produce new product varieties. The model motivates two empirical questions: (1) Is research and developm ent partially correlated with firms ' propensity to introduce new products or product innovation in developing countries? (2) Do trade policies and the national investment climate affect firms ' propensity for product innovation? The econometric evidence suggests that the answers are yes and yes, but the investment climate affects product innovation in a manner that is consistent with the presence of market failures and state capture. National trade-policy distortions appear to reduce the probability of product innovation, and the density of exporting firms at the national level also seems to positively affect the propensity to introduce new products by individual firms. The paper discusses some policy implications.

Suggested Citation

  • Lederman, Daniel, 2007. "Product innovation by incumbent firms in developing economies : the roles of research and development expenditures, trade policy, and the investment climate," Policy Research Working Paper Series 4319, The World Bank.
  • Handle: RePEc:wbk:wbrwps:4319
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    References listed on IDEAS

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    6. Christian Lefèvre, 1998. "Metropolitan government and governance in western countries: a critical review," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 22(1), pages 9-25, March.
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    Cited by:

    1. Yasar, Mahmut & Paul, Catherine J. Morrison & Ward, Michael R., 2011. "Property Rights Institutions and Firm Performance: A Cross-Country Analysis," World Development, Elsevier, vol. 39(4), pages 648-661, April.
    2. World Bank, 2009. "Tunisia's Global Integration : A Second Generation of Reforms to Boost Growth and Employment," World Bank Publications, The World Bank, number 6298.

    More about this item

    Keywords

    E-Business; Innovation; Microfinance; Inequality; Economic Theory & Research;

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