The Effects of Entry on Incumbent Innovation and Productivity

By Richard Blundell, Rachel Griffith, Susanne Prantl, Philippe Aghion, Peter Howitt. Review of Economics and Statistics, 2005

396 citations recorded by the source corpus.

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 theorythe 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.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/7d7a7f78ad9dc5c0fd1e658b60ba7d888c7e282f

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Citations in the corpus

Patent rights, product market reforms, and innovation (2015, neutral): “Focusing on the SMP, like we do,6 Bottasso and Sembenelli (2001) and Badinger (2007) show that this product market intervention reduced mark-ups in manufacturing industries. Gri¢ th et al. (2010) report that the SMP enhanced product market competition which, in turn, led to an increase in R&D expend”
Do Foreign Firms Crowd Out Domestic Firms? Evidence from the Czech Republic (2010, neutral): “50 Aghion et al. (2009) analyze the impact of entry on incumbents’ innovation and productivity in the U.”
The wider economic impacts of high-skilled migrants: a survey of the literature for receiving countries (2013, neutral): “Existing firms also face competition from entrepreneurs, who create businesses around new ideas (Schumpeter 1962; Aghion et al. 2009).”
Financial Constraints and Other Obstacles: are they a Threat to Innovation Activity? (2008, positive): “Our empirical findings are very much in line with the conclusions by Aghion (2006) about the important beneficial effects on economic growth of the absence of barriers to competition and entry, of spending on education reducing the shortage of qualified labor, of financial development or…”
Outside Directors on the Board and Innovative Firm Performance (2014, neutral): “(2002) and Aghion et al. (2009) we relax the assumption of strict exogeneity and account for unobserved time invariant firm”
Industry expertise on corporate boards (2017, positive): “For instance, Blundell, Griffith, and van Reenen (1999) and Aghion et al. (2009), among others, show that firm-level innovation increases with industry competition.”
The Impact of Business Environment Reforms on New Firm Registration (2010, neutral): “An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished.”
Agglomeration, clusters, and industrial policy (2013, methodology): “As discussed in section II, reducing barriers to entry in a sector might lead some incumbents to innovate and others to exit (Aghion et al. , 2009).”
Micro and macro policies in the Keynes+Schumpeter evolutionary models (2016, neutral): “We know empirically that most entrants are failures, but some are carriers of novel techniques and products (Dosi et al. 1997; Bellone et al. 2008; Aghion et al. 2009).”