Innovation or Imitation? The effect of spillovers and competitive pressure on firms' R&D strategy choice

This article provides a theoretical and empirical analysis of a firm's optimal R&D strategy choice. In this paper a firm's R&D strategy is assumed to be endogenous and allowed to depend on both internal firms. characteristics and external factors. Firms choose between two strategies, either they engage in R&D or abstain from own R&D and imitate the outcomes of innovators. In the theoretical model this yields three types of equilibria in which either all firms innovate, some firms innovate and others imitate, or no firm innovates. Firms'equilibrium strategies crucially depend on external factors. We find that the efficiency of intellectual property rights protection positively affects firms'incentives to engage in R&D, while competitive pressure has a negative effect. In addition, smaller firms are found to be more likely to become imitators when the product is homogeneous and the level of spillovers is high. These results are supported by empirical evidence for German .rms from manufacturing and services sectors. Regarding social welfare our results indicate that strengthening intellectual property protection can have an ambiguous effect. In markets characterized by a high rate of innovation a reduction of intellectual property rights protection can discourage innovative performance substantially. However, a reduction of patent protection can also increase social welfare because it may induce imitation. This indicates that policy issues such as the optimal length and breadth of patent protection cannot be resolved without taking into account specific market and firm characteristics. Journal of Economic Literature Classification Numbers: C35, D43, L13, L22, O31. Keywords: Innovation; imitation; spillovers; product differentiation; market competition; intellectual property rights protection.

Welfare Impacts of Cross-Country Spillovers in Agricultural Research, 2007

The welfare implications of intellectual property protection (IPP) for private sector agricultural research are analyzed, focusing on the realistic cases in which countries provide different IPP levels, technology spills over across countries, and the public sector is involved in research. A model is developed to determine who benefits from, and who should pay for, the associated research. The paper contains some interesting results on the implications of a harmonization of IPP policies through multilateral agreements or via technology that allows research firms to prevent the copying of plants and animals that express traits that have emerged from their research.

On the distribution of income and worker assignment under intra-firm spillovers, with an application to ideas and networks

We study the earnings structure and the equilibrium assignment of workers when workers exert intra-firm spillovers on each other.We allow for arbitrary spillovers provided output depends on some aggregate index of workers' skill. Despite the possibility of increasing returns to skills, equilibrium typically exists. We show that equilibrium will typically be segregated; that the skill space can be partitioned into a set of segments and any firm hires from only one segment. Next, we apply the model to analyze the effect of information technology on segmentation and the distribution of income. There are two types of human capital, productivity and creativity, i.e. the ability to produce ideas that may be duplicated over a network. Under plausible assumptions, inequality rises and then falls when network size increases, and the poorest workers cannot lose. We also analyze the impact of an improvement in worker quality and of an increased international mobility of ideas.

Endogenous spillovers, increased competition and re-organization waves

We consider an entrepreneur that is the sole producer of a costreducing skill, but the entrepreneur that hires a team to usethe skill cannot prevent collusive trade for the innovation related knowledge between employees and competitors. We showthat there are two types of diffusion avoiding strategies forthe entrepreneur to preempt collusive communication i) settingup a large productive capacity (the traditional firm) and ii)keeping a small team (the lean firm). The traditional firm ischaracterized by its many "marginal" employees that work shortdays, receive flat wages and are incompletely informed about the innovation. The lean firm is small in number of employees,engages in complete information sharing among members, that are paid with stock option schemes. We find that the lean firm is superior to the traditional firm when technological entry costsare low and when the sector is immature.

Diffusion with delayed informational spillovers

I study the relation between the delay in the transmission of spilloversof information and diffusion. When a firm enters or innovates it benefitsfrom the information it gets by observing past entry. Delays in the processof receiving the information reduce the benefits of the spillover and affectthe entry process.I derive the effects this delay has on diffusion, on the dynamics of priceand cost of entry, and on efficiency. I explain why, when spillovers ofinformation are delayed, a zero profit condition requires an initial set ofentrants bigger than zero. I also illustrate how an S-shaped diffusion curvecan be generated. I show that competitive equilibrium entails a slowergeneration of information relative to the social optimum and how a socialplanner can improve efficiency.

R&D cooperation and spillovers: Some empirical evidence

This paper provides some first empirical evidence on the relationshipbetween R&D spillovers and R&D cooperation. The results suggest disentangling different aspects of know-how flows. Firms which rate incoming spillovers more importantly and who can limit outgoing spillovers by a more effective protection of know-how, are more likely to cooperate in R&D. Our analysis also finds that cooperating firms have higher incoming spillovers and higher protection of know-how, indicating that cooperation may serve as a vehicle to manage information flows. Our results thus suggest that on the one hand the information sharing and coordination aspects of incoming spillovers are crucial in understanding cooperation, while on the other hand, protection against outgoing spillovers is important for firms to engage in stable cooperative agreements by reducing free-rider problems. Distinguishing different types of cooperative partners reveals that while managing outgoing spillovers is less critical in alliances with non-commercial research partners than between vertically related partners, the incoming spillovers seem to be more critical in understanding the former type of R&D cooperation.

Foreign direct investments and spillovers through workers' mobility

We analyze a model where a multinational firm can use its superiortechnology in a foreign subsidiary only after appropriate trainingof local managers. Technological spillovers from foreign directinvestment arise when such managers are later hired by a localfirm. Benefits for the host economy may also take the form of therent that trained managers receive by the foreign affiliate toprevent them from moving to local competitors. We study conditionsunder which technological spillovers occur. We also show that undercertain circumstances the multinational firm might find it optimalto resort to export instead of foreign direct investment, to avoiddissipation of its intangible assets.

Human capital spillovers, productivity and regional convergence in Spain

This paper analyses the differential impact of human capital, in terms of different levels of schooling, on regional productivity and convergence. The potential existence of geographical spillovers of human capital is also considered by applying spatial panel data techniques. The empirical analysis of Spanish provinces between 1980 and 2007 confirms the positive impact of human capital on regional productivity and convergence, but reveals no evidence of any positive geographical spillovers of human capital. In fact, in some specifications the spatial lag presented by tertiary studies has a negative effect on the variables under consideration.

Productivity and innovation spillovers: Micro evidence from Spain

This article analyses the impact that innovation expenditure and intrasectoral and intersectoral externalities have on productivity in Spanish firms. While there is an extensive literature analysing the relationship between innovation and productivity, in this particular area there are far fewer studies that examine the importance of sectoral externalities, especially with the focus on Spain. One novelty of the study, which covers the industrial and service sectors, is that we also consider jointly the technology level of the sector in which the firm operates and the firm size. The database used is the Technological Innovation Panel, PITEC, which includes 12,813 firms for the year 2008 and has been little used in this type of study. The estimation method used is Iteratively Reweighted Least Squares method, IRLS, which is very useful for obtaining robust estimations in the presence of outliers. The results confirm that innovation has a positive effect on productivity, especially in high-tech and large firms. The impact of externalities is more heterogeneous because, while intrasectoral externalities have a poitive and significant effect, especially in low-tech firms independently of size, intersectoral externalities have a more ambiguous effect, being clearly significant for advanced industries in which size has a positive effect.

Human Capital Spillovers Productivity and Regional Convergence in Spain

This paper analyses the differential impact of human capital, in terms of different levels of schooling, on regional productivity and convergence. The potential existence of geographical spillovers of human capital is also considered by applying spatial panel data techniques. The empirical analysis of Spanish provinces between 1980 and 2007 confirms the positive impact of human capital on regional productivity and convergence, but reveals no evidence of any positive geographical spillovers of human capital. In fact, in some specifications the spatial lag presented by tertiary studies has a negative effect on the variables under consideration.

Volatility spillovers in EMU sovereign bond markets

We analyse volatility spillovers in EMU sovereign bond markets. First, we examine the unconditional patterns during the full sample (April 1999-January 2014) using a measure recently proposed by Diebold and Yılmaz (2012). Second, we make use of a dynamic analysis to evaluate net directional volatility spillovers for each of the eleven countries under study, and to determine whether core and peripheral markets present differences. Finally, we apply a panel analysis to empirically investigate the determinants of net directional spillovers of this kind.

Integration or a Greek tragedy?: How crisis spillovers affect Central and Eastern European States

Tutkielma siitä, miten Euroopan entisten sosialistivaltioiden markkinoiden integroituminen on edistynyt Kreikan ja EMU-alueen kanssa euron käyttöönoton ajalta. Tutkimus vertaa maiden markkinoiden reaktioita Kreikasta ja EMU-alueelta kantautuviin sokkeihin ennen ja jälkeen vuonna 2007 alkanutta kriisiä.

Return and Volatility spillovers among stock and Foreign Exchange Markets: Empirical Evidence from selected African Markets

Return and volatility dynamics in financial markets across the world have recently become important for the purpose of asset pricing, portfolio allocation and risk management. However, volatility, which come about as a result of the actions of market participants can help adapt to different situations and perform when it really matters. With recent development and liberalization among financial markets in emerging and frontier markets, the need for how the equity and foreign exchange markets interact and the extent to which return and volatility spillover are spread across countries is of importance to investors and policy makers at large. Financial markets in Africa have received attention leading to investors diversifying into them in times of crisis and contagion effects in developed countries. Regardless of the benefits these markets may offer, investors must be wary of issues such as thin trading, volatility that exists in the equity and currency markets and its related fluctuations. The study employs a VAR-GARCH BEKK model to study the return and volatility dynamics between the stock and foreign exchange sectors and among the equity markets of Egypt, Kenya, Nigeria, South Africa and Tunisia. The main findings suggest a higher dependence of own return in the stock markets and a one way return spillover from the currencies to the equity markets except for South Africa which has a weaker interrelation among the two markets. There is a relatively limited integration among the equity markets. Return and volatility spillover is mostly uni-directional except for a bi-directional relationship between the equity markets of Egypt and Tunisia. The study implication still proves a benefit for portfolio managers diversifying in these African equity markets, since they are independent of each other and may not be highly affected by the influx of negative news from elsewhere. However, there is the need to be wary of return and volatility spillover between the equity and currency markets, hence devising better hedging strategies to curb them.

Spillovers de volatilidad entre tasa de interés y tasa de cambio en Colombia, 2003-2009

Este trabajo se concentra en el estudio de los mecanismos de transmisión de información entre las volatilidades del diferencial de tasas de interés de Colombia y Estados Unidos tanto en el corto como en el largo plazo y la tasa de cambio usando tres diferentes tipos de modelos GARCH multivariados, encontrando que hay evidencia de spillovers de volatilidad de los diferenciales de tasas de interés hacia la tasa de cambio, que esta transmisión de información persiste en el tiempo y que los choques exógenos a estos mercados no tienen carácter asimétrico.