The Effects of Entry on Incumbent Innovation and Productivity

Richard Blundell (), Rachel Griffith, Peter Howitt (), Prantl Susanne and Philippe Aghion

Scholarly Articles from Harvard University Department of Economics

Abstract: How does firm entry affect innovation incentives in incumbent firms? Microdata suggest that there is heterogeneity across industries. Specifically, incumbent productivity growth and patenting is positively correlated with lagged greenfield foreign firm entry in technologically advanced industries, but not in laggard industries. In this paper we provide evidence that these correlations arise from a causal effect predicted by Schumpeterian growth theory—the threat of technologically advanced entry spurs innovation incentives in sectors close to the technology frontier, where successful innovation allows incumbents to survive the threat, but discourages innovation in laggard sectors, where the threat reduces incumbents' expected rents from innovating. We find that the empirical patterns hold using rich micro panel data for the United Kingdom. We control for the endogeneity of entry by exploiting major European and U.K. policy reforms, and allow for endogeneity of additional factors. We complement the analysis for foreign entry with evidence for domestic entry and entry through imports.

Date: 2009
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Citations: View citations in EconPapers (459)

Published in Review of Economics and Statistics

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http://dash.harvard.edu/bitstream/handle/1/4554222/aghion_incumbent.pdf (application/pdf)

Related works:
Journal Article: The Effects of Entry on Incumbent Innovation and Productivity (2009)
Working Paper: The Effects of Entry on Incumbent Innovation and Productivity (2006)
Working Paper: The effects of entry on incumbent innovation and productivity (2006)
Working Paper: The Effects of Entry on Incumbent Innovation and Productivity (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:hrv:faseco:4554222

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