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Competition and Innovation - Microeconometric Evidence Using Finnish Data

Author

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  • Juha Kilponen

    (Bank of Finland)

  • Torsten Santavirta

    (University of Helsinki)

Abstract

In this study we provide a theoretical prediction of a complementary relationship between the incentive effects of product market competition and R&D subsidies using the theory of Aghion et. al (1997, 2001). The complementarity relationship and that of an inverted U-relationship is then tested using a large Finnish firm level data set combined with patent and patent citations of the firms. Econometric analysis shows that the inverted U-relationship is fairly robust to different innovation measures derived from patent data. We also find that the inverted-U relationship tends to be steeper when also R&D subsidies are considered. This result suggests that there exists a complementarity between competition and R&D subsidies.

Suggested Citation

  • Juha Kilponen & Torsten Santavirta, 2005. "Competition and Innovation - Microeconometric Evidence Using Finnish Data," Industrial Organization 0509009, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpio:0509009
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    References listed on IDEAS

    as
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    Cited by:

    1. Ad van Riet & Moreno Roma, 2006. "Competition, productivity and prices in the euro area services sector," Occasional Paper Series 44, European Central Bank.
    2. Valkonen, Laura, 2006. "Deregulation as a Means to Increase Competition and Productivity," Discussion Papers 1014, The Research Institute of the Finnish Economy.
    3. Kilponen, Juha & Kinnunen, Helvi & Ripatti, Antti, 2006. "Population ageing in a small open economy : some policy experiments with a tractable general equilibrium model," Research Discussion Papers 28/2006, Bank of Finland.
    4. Kilponen, Juha & Santavirta, Torsten, 2007. "When do R&D subsidies boost innovation? : revisiting the inverted U-shape," Research Discussion Papers 10/2007, Bank of Finland.
    5. Juha Kilponen & Helvi Kinnunen & Antti Ripatti, 2006. "Demographic Uncertainty and Labour Market Imperfections in Small Open Economy," Computing in Economics and Finance 2006 227, Society for Computational Economics.

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    Keywords

    Product market competition; Innovations; R&D subsidies;
    All these keywords.

    JEL classification:

    • L - Industrial Organization

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