Service-sector Competition, Innovation and R&D

Patrick Gustavsson Tingvall, Patrik Karpaty

    Research output: Contribution to journalJournal articlepeer-review


    The central prediction of the Aghion, Bloom, Blundell and Howitt model is an inverted U-shaped relationship between innovation and competition. The model is built on the assumption of a product market and has not yet been tested on the service sector. Using detailed firm-level data on Swedish service-sector firms, we find evidence of an inverse U-shaped relationship for exporting service-sector firms. A further breakdown of innovation expenditures shows that the inverse U-shaped pattern holds for intramural R&D and training, but not for extramural R&D. Finally, the results indicate that as competition increases, small firms tend to seek strategic alliances with competitors, whereas large firms tend to reduce collaboration with competitors. The behavior of large firms can partly be due to their superior capacity to handle innovation projects internally, which will become more important if increased competition results in higher pay-offs to innovation.
    Original languageEnglish
    JournalEconomics of Innovation and New Technology
    Issue number1
    Pages (from-to)63-88
    Publication statusPublished - 2011


    • R&D
    • Innovation
    • Competition
    • Service Sector
    • CIS Data

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