Competition and Innovation: Evidence from Worldwide Corporate R&D Spenders

The paper aims at assessing the effect of competition of firm-level innovation. The sample is composed of the world top corporate R&D spender listed in the EU-2017 industrial R&D Scoreboard, and the analysis covers the years spanning 2007 to 2016. We use an industry-year-indicator, the inverse of the Lerner index, to measure the competition level R&D expenditures are used as a proxy for innovation. Model is estimated using two-stage least squares, to control for potential endogeneity of the competition indicator. Results confirm the existence of an inverted-U relationship between competition and innovation. Further analysis is undertaken splitting the overall firm sample into services and manufacturing sectors according to technology and knowledge intensities. We validate the inverted-U shaped relationship between competition and innovation for the firms in medium-high-tech and high-tech manufacturing sectors whereas we do not observe the impact for the firms in medium-low and low-tech manufacturing sectors nor service sectors.