Top PDF The effects of entry on incumbent innovation and productivity

The effects of entry on incumbent innovation and productivity

The effects of entry on incumbent innovation and productivity

panel data instead of plant or firm panel data to investigate how the effectiveness of the Indian liberalization reform depends on the technological and institutional state-industry environment, in particular labor market regulation. Second, there is the empirical industrial organization literature fol- lowing the work of Bresnahan and Reiss (1990, 1991) and Berry (1992). Berry and Reiss (2006) survey structural econometric models with entry in well-defined, mostly oligopolistic markets and endogenous market structure and discuss the insights gained into the determinants of firms’ entry decisions, the importance of firm heterogeneity, and the nature of competition. Olley and Pakes (1996) investi- gate the effects of deregulation on aggregate productivity growth and the underlying reallocation mechanism in one particular industry. Our emphasis is instead on within-firm changes in innovation incentives and in variation of entry effects on incumbent performance across markets. Another related strand is the literature on product market competi- tion, firm performance, and innovation, in particular Nickell (1996), Blundell, Griffith, and Van Reenen (1999), and Aghion et al. (2005a). Aghion et al. present evidence on an inverted-U relationship between product market competi- tion and innovative activity and find this to be steeper in neck-and-neck industries. Aghion and Griffith (2005) sur- vey recent theoretical and empirical literature on competi- tion, entry and growth, and the relevance of distance to frontier. Aghion and Howitt (2006) focus on policy impli- cations.
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The Effects of Entry on Incumbent Innovation and Productivity

The Effects of Entry on Incumbent Innovation and Productivity

5.3.3 Resource reallocation and knowledge spillovers Our analysis so far contributes to a better understanding of the heterogeneity of entry ef- fects on incumbent innovation and productivity growth across different industries. There are, however, other mechanisms whereby entry induces economic growth, that are not explored in this paper. The most important one is reallocation of productive inputs and outputs. High productivity entrants may induce the replacement of low productivity firms and thus increase productivity measured on an aggregated level. Empirical support for the importance of this mechanism is provided by Olley and Pakes (1996), Pavcnik (2002) and others. The dynamic industry model with heterogeneous firms by Melitz (2003) provides a theoretical analysis of reallocative effects triggered by opening up industries to international trade. In contrast to what we do, within-firm productivity is assumed to be constant in that paper and innovation incentives of incumbent firms are not considered. Bernard et al. (2003) consider reallocation of resources, plant turnover and measured productivity changes of incumbents caused by changing prices or by mark-up changes in an imperfect competition framework. They do not analyze effects of policy changes on within-firm incentives of incumbents, especially not het- erogenous within-firm reactions. While we do not consider the within-industry reallocation effects these papers focus on we investigate in detail how entry effects within-firm changes of innovation incentives and productivity growth, and does so differently in industries at different distance to the industry-specific technological frontier.
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Does Schumpeterian Creative Destruction Lead to Higher Productivity? The effects of firms’ entry

Does Schumpeterian Creative Destruction Lead to Higher Productivity? The effects of firms’ entry

This paper discusses the impact of newly created firms on industry productivity growth. Our central hypothesis is that there are two potential effects of new firms on productivity growth: a direct effect, as entrants may be relatively more productive than established firms; and an indirect effect, through increased competitive pressure that stimulates incumbents to elevate their productivity in order to survive. The results of the decomposition exercise of aggregate productivity growth suggest that the direct contribution of entry is small. In turn, the regression analysis on the effect of entry on productivity growth of incumbents indicates that the higher is the former, the higher is the latter, which is equivalent to say that the greater is the competitive pressure generated by new entrants, the higher is the expected aggregate productivity level.
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The Effects of the Internationalisation of Firms on Innovation and Productivity

The Effects of the Internationalisation of Firms on Innovation and Productivity

The international trade and investment literature has established that firms with international linkages have a higher productivity in comparison to firms that serve only the domestic markets. Existing empirical evidence shows that foreign-owned firms are more productive than domestic firms (Doms and Jensen, 1998; Driffield, 1997; Griffith and Simpson, 2001; Ruane and Ugur, 2004; Girma and Görg, 2007). More recent studies have found that a large part of this productivity differential is between multinationals and non- multinationals (Griffith, 1999; Oulton, 2000; Temouri et al. 2008). Theoretical models of firm heterogeneity and international trade demonstrated that given fixed costs associated to entry on exports markets only firms with high productivity self-select into exporting (Bernard and Jensen, 1999; Melitz, 2003). While this literature has assumed that firm productivity is exogeneous, more recent theoretical contributions allow for the possibility of firms to increase their productivity through innovation activities (Yeaple, 2005; Bustos, 2005).
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Innovation regimes, entry and market structure

Innovation regimes, entry and market structure

productivity improvement seems to be a rather ineffective weapon to eliminate competitors from the market, although it provides comparably good economic effects; the profit is almost the same as in the case of the technical regime and even slightly larger than in the case of the cost regime. An interesting property of the industry development related to the supply and demand balance is observed for technical regime. In almost all simulation runs for all three innovation regimes the supply to demand ratio is very close to one; it fluctuates around the equilibrium value and the mode of the S/D ratio development does not depend on the rate of change. But for fast technical development instability of the supply and demand occurs (it can be named ‘new products shortages’). The value of the S/D ratio drops heavily below one and is the smaller the faster the development. It is necessary to allow firm entry to make supply and demand more balanced. The entry also provide much quicker recovery from the deep imbalance and quicker development of the industry towards the equilibrium. Entry of new competitors allows not only to keep concentration of an industry on relatively low level and, through stronger competition, allows to reduce products price, but also allows to keep the market balanced.
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Does FDI spur innovation, productivity and knowledge sourcing by incumbent firms? Evidence from manufacturing industry in Estonia

Does FDI spur innovation, productivity and knowledge sourcing by incumbent firms? Evidence from manufacturing industry in Estonia

A standard prediction from theory is that FDI spillovers are stronger if the foreign owned firms are geographically close to the domestic enterprises (e.g. Jaffe et al. 1993). But, as evident from Table 4, there appears to be no significant correlation between the FDI entry within the local geographical region and TFP or labour productivity growth of incumbents of the same region in Estonia. This is similar to Aitken and Harrison (1999) findings based on data from Venezuela. They find no evidence of horizontal spillovers, regardless of the geographical proximity between firms. Because FDI entry rate in Table 4 has been calculated separately for different regions within Estonia we cannot use the same instrumental variables as before. Therefore the results concerning the region level effects are likely to be biased. They rely on a restrictive assumption that the part of error term in Equation (1) that is correlated with the FDI entry variable can be seen as fixed over the time period studied. Only then would the FE specification account for the potential endogeneity bias.
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Acquisitions, Entry and Innovation in Network Industries

Acquisitions, Entry and Innovation in Network Industries

To see this, let us first consider how our results on how network effects affect acquisition prices and how the commercialization mode would be affected by the presence of ex-ante asym- metric incumbents. Suppose that there is initially one larger more efficient incumbent d and n−1 less efficient symmetric incumbents. The dominating incumbent could be created by acqui- sitions of previous innovations. The valuations for acquiring the entrepreneurial firm will then differ between incumbents and the auction game will, in general, be tedious to solve. A sufficient condition for an acquisition, however, is that the net value of an entry deterring acquisition for incumbent firm d is positive:
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Innovation modes and productivity in the UK

Innovation modes and productivity in the UK

Stoneman, 2007). This involves the computation of a tetrachoric correlation matrix, and factor analysing this matrix, under the assumption that the observed binary variables correspond to latent continuous variables. 1 We retain the number of factors which have eigenvalues greater than 1; any deviation from this rule, i.e. the inclusion of factors with eigenvalues smaller than 1, is discussed in the relevant results section. We present results based on unweighted data, using principal component analysis and varimax rotation to generate the factors, unless specified otherwise. We also computed results based on (i) weighted data and (ii) oblique rotations and found the results to be highly similar to those presented here. Finally, an advantage of the factor analysis is that it provides indicators in the form of a set of factor scores for each firm in the sample, which can then be used as explanatory variables in modelling productivity responses to innovation. Regression methods were used to compute the factor scores, which have a low correlation amongst themselves. (Fidell and Tabachnick, 2006).
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Innovation and the export-productivity link

Innovation and the export-productivity link

anything affecting its productivity could drive the firm into exports. Recent productivity literature, however, has found evidence that suggests that firm-specific demand variations, rather than technical efficiency, are the dominant factor in determining firm survival and positively influencing productivity (Foster et al., 2005). This suggests that product innovation related to positive demand shocks rather than innovation in processes related to production efficiency could be responsible for the increase in productivity and, consequently, entry into exporting. Consistent with this argument, product innovation has been found to play a very important role in explaining the firm’s export decision (Basile, 2001; see related paper Cassiman and Martínez-Ros, 2007), showing that innovation-active firms are significantly more likely to become exporters than non-innovators. Thus, accounting for innovation may be critical in explaining the strong positive correlation between exporting and productivity in the existing research. We therefore argue that the observed productivity-export link may be partly explained by the firm’s innovation status.
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Entry and Innovation in Vertically Differentiated Markets

Entry and Innovation in Vertically Differentiated Markets

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"Success Taxes," Entrepreneurial Entry, and Innovation

"Success Taxes," Entrepreneurial Entry, and Innovation

Interest in the role of entrepreneurial entry in innovation raises the question of the extent to which tax policy encourages or discourages entry. We find that, while the level of the marginal tax rate has a negative effect in entrepreneurial entry, the progressivity of the tax also discourages entrepreneurship, and significantly so for some groups of households. These effects are principally traceable to the "upside" or "success" convexity of the household tax schedule. Prospective entrants from a priori innovative industries and occupations are no less affected by the considerations we examine than other prospective entrants. In terms of destination-based industry and occupation measures of innovative entrepreneurs, we find mixed evidence on whether innovative entrepreneurs differ from the general population; the results for entrepreneurs moving to innovative industries suggest that they may be unaffected by tax convexity but the possible endogeneity of this measure of innovative entrepreneurs confounds interpreting this specification. Using education as a measure of potential for innovation, we find that tax convexity discourages entry into self-employment for people of all educational backgrounds. Overall, we find little evidence that the tax effects are focused simply on the employment changes of less skilled or less promising potential entrants. William M. Gentry
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Financial Constraints, Innovation, and Productivity

Financial Constraints, Innovation, and Productivity

2.4. Finance, Firm Growth, and Innovation The idea of industry-specific factors influencing innovation has roots in classic papers such as Schumpeter (1943) who stresses the significant impact that market structure can have on R&D and innovation. Availability of finance as a market characteristic has received attention from previous works. Cash flow, as a measure of internal finance, has been suggested to drive innovation and R&D by many empirical studies (Antonelli, 1989; Hao and Jaffe, 1990; and Kraft, 1989). There is an ongoing debate as to whether cash flow encourages R&D or whether it reflects the profitability of past R&D. Using simple lag structures, Hao and Jaffe (1990) and Himmelberg and Petersen (1994) provide evidence that causality runs from cash flow to R&D. Many cross-country studies find that financial barriers restrict firm growth (Beck and Demirguc- Kunt, 2006; Klapper et al., 2006; Levine et al. 2000; Tourigny and Le, 2004). They also
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Innovation modes and productivity in the UK

Innovation modes and productivity in the UK

This paper is motivated by the aim to develop appropriate indicators capturing modes of innovation by UK enterprises, examine how such innovation practices vary across regions and industries and explore the extent to which they have an impact on productivity. There is an emphasis on identifying and examining the relevance of non-technological innovation that builds on and extends previous research in this important area. Traditionally, measures of innovation have rested on single indicators such as patenting or R&D, supplemented, by product and process and process innovation outputs. More recently innovations in management, organisational and marketing areas are being brought into the picture and the relevant information collected by innovation surveys.
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ICT, Innovation and Productivity Growth

ICT, Innovation and Productivity Growth

Thus, the table clearly indicates that there is a positive connection between demand innovation, ICT expenditures, and productivity growth. This finding will be further scrutinized in the next chapter. Table 4.4 below focuses on supply innovation. The left hand side of the table groups the firms in our sample according to whether they engaged in process innovation in 2007 and whether they were in the top half of firms with respect to ICT expenditure per employee. The same picture as for product and marketing innovation emerges, namely that firms with higher than median ICT expenditure per employee, engaged in supply innovation, had higher than average annual productivity growth over the period 2007-2010 than other firms in our sample.
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MAXIMIZING PRODUCTIVITY IN PRODUCT INNOVATION

MAXIMIZING PRODUCTIVITY IN PRODUCT INNOVATION

allocating development resources is fundamental to productivity improvement in NPD. Recognize that every development project is an investment, and like stock market investments, these development invest- ments must be carefully scrutinized and focused through an effective portfolio management system. This is achieved through a funneling approach: start with many solid new product concepts, and succes- sively remove the weak ones via a series of gates. While a formal portfolio management system is still rare in even the best of firms, the tendencies in Figure 6 are evident: best-performers have such a system by a seven-to-one ratio when compared to poor-performing businesses. Note also that high-productivity busi- nesses—the ones with the best NPD performance overall—achieve a much better balance between num- bers of projects and resources available; that is, they do not overload their development pipeline. Further, they have a much better balance between small, short- term projects and major, longer-term ones; and finally, they are more judicious about the specific projects they select, and end up with a portfolio of much
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R&D Spillovers, Innovation, and Entry

R&D Spillovers, Innovation, and Entry

The model we formulate to analyze the influence of R&D spillovers on entry is a two-stage game played by a number of firms producing a homogeneous good. In the first stage of the game, the firms carry out R&D activities to lower their production cost. It is assumed that before innovation, all the firms have the same marginal cost. In the second stage, the firms compete in the product market according to the Cournot model of competition. All the firms act non- cooperatively in both stages of the game. In the R&D stage, each firm runs its own research lab, and takes into account the natural spillovers that flow among firms in a strategic manner. In modeling the horizontal spillovers among firms, we follow the pioneering work of Ruff (1969), who analyzed a stylized growth model in which firms compete according to the Cournot model
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Essays on innovation, productivity, and talent allocation

Essays on innovation, productivity, and talent allocation

3.2.5 Asset Accumulation of Rejected and Accepted Applicants In the second period, able agents who have chosen the working path would always work in the second period and [r]

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Entry, Exit, and Productivity in Tunisian Manufacturing Industries

Entry, Exit, and Productivity in Tunisian Manufacturing Industries

While there has been a profusion of theoretical work on entry and exit of firms, there is comparatively little empirical work in the area even for developed countries (Disney et al. 2003) . Firm entry and exit is a part of the market selection process, by which resources are reallocated within or across industries. The process of entry and exit influences economic performance through firms’ internal restructuring, reallo- cation of resources among firms and changes in market shares of incumbents. It also induces the introduction of new technologies, thereby improving economic perfor- mance. Unfortunately, shortage in firm demographics data in Tunisia and its coverage enables researchers to draw concrete inferences on firm dynamics and poses an important obstacle to analyzing births and deaths of enterprises. This data shortage necessitates the need for more effort to be done on data collection and dissemination for better understanding of the within-firm growth and market dynamics.
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Firm Productivity and the Foreign-Market Entry Decision

Firm Productivity and the Foreign-Market Entry Decision

The paper examined how a manufacturer supplies goods to a foreign mar- ket, representing this decision as a three-stage process. In the first stage, the manufacturer decides whether to export or to invest in the foreign country. In the second stage, the manufacturer chooses the investment mode: green- field investment or M&A. If he opts for greenfield investment, the third- stage decision is whether to establish a wholly owned subsidiary or to form a joint venture with a local partner. We constructed a model to show how these choices are interrelated and how they are determined by total factor productivity and other firm-specific characteristics, as well as by industry- and country-level variables. We then confronted the model with firm-level Japanese data and found that its main predictions were confirmed. In par- ticular, we found that, controlling for industry- and country-specific factors, the higher is a firm’s total factor productivity, the more likely it is to choose whole ownership rather than a joint venture, greenfield investment rather than M&A, and FDI rather than exporting. These results indicate that firm- specific characteristics play an important role in determining the pattern of FDI and that we hence should observe considerable heterogeneity in the in- vestment and ownership mode choices of firms even within the same industry. This suggests that a consideration of firm-level determinants adds a signifi- cant new dimension to the FDI literature, that has traditionally relied only
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Innovation and Productivity in the Argentine Manufacturing Sector

Innovation and Productivity in the Argentine Manufacturing Sector

Finally, regarding the sources of financing, many firms (around 30 percent) that did not claim to have made expenditures on innovative activities still allocate percentages to different sources. This is partly explained by differences in the reference period between questions: while the whole period is the reference for the question about finance, the individual year is the point of reference for innovative expenditures. In these estimations we include sources of financing as originally reported by firms. We exclude some of the original categories from the analysis (i.e. international financial institutions and other sources) because very few firms have chosen these options. Given these caveats, the results must be interpreted with caution. It can be concluded that the higher the share of private sources of financing (i.e., suppliers, clients, other firms) the more intensively the firms invest in in-house activities and machinery. Funding from banks also increases the intensity of investment in embodied technologies, while they do not affect the intensity of investment in other activities, possibly due to the fact that machinery may be accepted as valid collateral when borrowing from banks while in-house innovative activities do not. On the contrary, firms that use primarily their own sources invest less in all external technologies, which suggests that financial constraints matter for acquiring external technologies. 6.2. Innovation Output
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