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Investments in Innovations and Market Structure: A Semi-parametric Approach

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  • Sukhdeep Singh

Abstract

The economic literature suggests that there is an inverted-U type of relationship between innovation and product market competition. Existing empirical studies assume a quadratic functional form while estimating the relationship between the two variables. Using data on the Indian manufacturing industry, this article contributes by using a semi-parametric approach to test the ‘Inverted-U’ hypothesis without assuming a priori functional form. The estimation results suggest that the functional form of the relationship is contingent upon the choice of product market competition indicator in the model. When product market competition is defined as overall price competition, the empirical evidence confirms the inverted-U hypothesis. This implies that both escape competition and the Schumpeterian effect are observed as price competition increases. However, when product market competition is defined as domestic competition, only the escape competition effect is observed. JEL Codes: L10, L60, O30, O33, F10

Suggested Citation

  • Sukhdeep Singh, 2024. "Investments in Innovations and Market Structure: A Semi-parametric Approach," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 25(1), pages 26-44, March.
    • Handle: RePEc:sae:soueco:v:25:y:2024:i:1:p:26-44
    DOI: 10.1177/13915614241233888
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    More about this item

    Keywords

    Innovations; R&D expenditure; market structure; product market competition; Indian manufacturing industry; semi-parametric regression;
    All these keywords.

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • F10 - International Economics - - Trade - - - General

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