Competition and innovation both stimulate the development and growth of the economy. The mutual effect on prosperity and welfare growth have been researched and published extensively. The effect between innovation and competition is often overlooked and it is this very nexus that can provide us with the key to answering the following questions about welfare growth: What are the optimal levels of innovation and competition to stimulate growth? Is there an inverse U-curve present, and if so in which industries and what are the corresponding optimal levels of competition and innovation in those sectors? The Roman Empire was able to dictate and control the world for many centuries because they understood the relationship between innovation, gaining a competitive edge and success. The innovations ranging from battlefield ‘eagles’ to the first armoured unit to the invention of the scutum all helped to maintain an advantage that allowed them separate themselves from the masses. Translating this to todays’ world we can see that the essence of competition and innovation have not changed, still both are needed to optimize a welfare enhancing environment in today’s business world. Schumpeter’s early work (mark I&II) both examined the relationship between innovation and competition. These findings were used by Aghion to further investigate the relationship between innovation and competition to see whether an inverse U-curve is indeed apparent in the UK. In this paper Brouwer outlines the methodological weaknesses in the works presented by Aghion et all and proposes new indicators to more accurately estimate an econometric model, which will enhance the validity and give policy makers a more profound judgement to base future policies on.
|Place of Publication||Tilburg|
|Number of pages||55|
|Publication status||Published - 2007|
|Name||TILEC Discussion Paper|
- innovation & competition
- inverse U-curve