() and Patrik Gustavsson Tingvall
Andreas Poldahl: FIEF, Postal: and ESI, Örebro University, SE-701 82 Örebro, Sweden
Patrik Gustavsson Tingvall: FIEF, Postal: and EIJS, Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm , Sweden
Abstract: 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.
25 pages, February 27, 2005
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