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Competition and Innovation - Microeconometric Evidence using Finnish Data

Juha Kilponen () and Torsten Santavirta ()

No 113, Research Reports from VATT Institute for Economic Research

Abstract: The relationship between product market competition (PMC) and innovative activity has attracted the attention of many economists lately. In this study we elaborate the theory of Aghion et al. (1997, 2001) of an inverted-U relationship between competition and innovations. We provide a theoretical prediction of a complementary relationship between the incentive effects of PMC and R&D subsidies. We empirically test our complementarity prediction and that of an inverted-U relationship using Finnish firm level data. Our results suggest that the inverted-U relationship is fairly robust to all our innovation measures. We also find that the inverted-U relationship tends to be steeper when also direct R&D subsidies are considered. This result suggests that there exists complementarity between competition and R&D subsidies.

Keywords: Product market competition, Innovation, RD subsidies, Economic growth, Taloudellinen kasvu, Taxation and Social Transfers, Julkisen talouden rahoitus ja tulonsiirrot, L100 - Market Structure, Firm Strategy, and Market Performance: General, O100 - Economic Development: General, O300 - Technological Change; Research and Development: General, O310 - Innovation and Invention: Processes and Incentives, (search for similar items in EconPapers)
Date: 2004
New Economics Papers: this item is included in nep-com, nep-cse, nep-ind, nep-ino, nep-mic and nep-tid
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https://www.doria.fi/handle/10024/148578

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