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Competition, imitation, and technical change : quality vs. variety

  • Cusolito, Ana
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    Some researchers have documented that the path of development is remarkably related to the pattern of sectoral diversification. Others have highlighted the relation between productive specialization and economic progress. This paper explores the role of product market competition and intellectual property rights protection in the pattern of sectoral diversification. The paper confirms the insight of the innovation literature, that competition induces firms to specialize and upgrade the quality of existing goods. However, it reveals a new force, called the imitation effect, through which competition biases technical change toward product diversification. The paper shows that if knowledge spillovers increase with imitation, or the degree of product substitution is high, weak protection of property rights encourages firms to create low-quality goods, thereby directing technical change toward diversification. The predictions are tested with data on Italian firms'innovation activity. They are found to be consistent with observed behavior.

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    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4997.

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    Date of creation: 01 Jul 2009
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    Handle: RePEc:wbk:wbrwps:4997
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    5. Amit Khandelwal, 2009. "The Long and Short (of) Quality Ladders," NBER Working Papers 15178, National Bureau of Economic Research, Inc.
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    8. Nickell, Stephen J, 1996. "Competition and Corporate Performance," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 724-46, August.
    9. Yang, Guifang & Maskus, Keith E., 2001. "Intellectual property rights, licensing, and innovation in an endogenous product-cycle model," Journal of International Economics, Elsevier, vol. 53(1), pages 169-187, February.
    10. 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.
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    20. Andrew B. Bernard & J. Bradford Jensen, 2004. "Why Some Firms Export," The Review of Economics and Statistics, MIT Press, vol. 86(2), pages 561-569, May.
    21. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
    22. Elhanan Helpman, 1992. "Innovation, Imitation, and Intellectual Property Rights," NBER Working Papers 4081, National Bureau of Economic Research, Inc.
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    24. Daron Acemoglu, 2002. "Directed Technical Change," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 781-809.
    25. Shaked, Avner & Sutton, John, 1987. "Product Differentiation and Industrial Structure," Journal of Industrial Economics, Wiley Blackwell, vol. 36(2), pages 131-46, December.
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