NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Effects of Entry on Incumbent Innovation and Productivity

Philippe Aghion, Richard Blundell, Rachel Griffith, Peter Howitt, Susanne Prantl

NBER Working Paper No. 12027
Issued in February 2006
NBER Program(s):   EFG   IO   PR

How does firm entry affect innovation incentives and productivity growth in incumbent firms? Micro-data suggests that there is heterogeneity across industries--incumbents in technologically advanced industries react positively to foreign firm entry, but not in laggard industries. To explain this pattern, we introduce entry into a Schumpeterian growth model with multiple sectors which differ by their distance to the technological frontier. We show that technologically advanced entry threat spurs innovation incentives in sectors close to the technological frontier--successful innovation allows incumbents to prevent entry. In laggard sectors it discourages innovation--increased entry threat reduces incumbents' expected rents from innovating. We find that the empirical patterns hold using rich micro-level productivity growth and patent panel data for the UK, and controlling for the endogeneity of entry by exploiting the large number of policy reforms undertaken during the Thatcher era.

download in pdf format
   (583 K)

email paper

This paper is available as PDF (583 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w12027

Published: Philippe Aghion & Richard Blundell & Rachel Griffith & Peter Howitt & Susanne Prantl, 2009. "The Effects of Entry on Incumbent Innovation and Productivity," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 20-32, October. citation courtesy of

Users who downloaded this paper also downloaded these:
Aghion, Bloom, Blundell, Griffith, and Howitt w9269 Competition and Innovation: An Inverted U Relationship
Ardagna and Lusardi w14012 Explaining International Differences in Entrepreneurship: The Role of Individual Characteristics and Regulatory Constraints
Bertrand and Kramarz w8211 Does Entry Regulation Hinder Job Creation? Evidence from the French Retail Industry
Ardagna and Lusardi w15510 Heterogeneity in the effect of regulation on entrepreneurship and entry size
Arrow Economic Welfare and the Allocation of Resources for Invention
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us