Type
Working paper
Title
Spillovers, Product Substitution and R&D Investment: Theory and Evidence
Author(s)
NESTA Lionel - Observatoire français des conjonctures économiques (Author)
GREBEL Thomas - 2441/5adcidkke9omt0s9p6icichbk (Author)
Editor
Paris : OFCE
Collection
Working paper de l'OFCE : 2013-22
Keywords
Process R&D, spillovers, product substitution , reaction function, GMM
Abstract
EN
We investigate the conditions under which R&D investment by rival firms may be negatively or positively correlated. Using a two-stage game the influence of spillovers and product substitution is investigated. It is shown that under Cournot competition, the sign of the R&D reaction function depends on four types of environments in terms of the level of product substitution and of spillovers. We then test the prediction of the model on the world’s largest manufacturing corporations. We assume that firms make oblivious R&D investments based on the R&D decision of the average rival company. We then develop a dynamic panel data model that accounts for the endogeneity of the decision of the mean rival firms. Results corroborate the validity of the theoretical model.
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