Competition and Innovation: An inverted-U relationship using Japanese industry data

Author Name YAGI Michiyuki (Tohoku University) / MANAGI Shunsuke (Faculty Fellow, RIETI)
Creation Date/NO. July 2013 13-E-062
Research Project Economic Analysis of Environmental, Energy, and Resource Strategies Following the Great East Japan Earthquake
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This study replicates a model of Aghion et al. ("Competition and Innovation: An inverted-u relationship," Quarterly Journal of Economics 2005; 120(2):701-728), which suggests that an inverted-U relationship exists between competition and innovation. We apply patent data and a competition measure based on Japanese firm-level and industry-average data from 1964 to 2006. In a constant slope model using a full dataset, we find the same inverted-U relationship as did Aghion-Bloom-Blundell-Griffith-Howitt (ABBGH). In decade and industry fixed-effects slope models, we find the inverted-U relationship to be fragile.

Published: Yagi, Michiyuki, and Shunsuke Managi, 2016. "Time-period and industry heterogeneity of innovation activity in Japan," Economic Analysis and Policy, Vol. 50, pp. 100-119