To Trump or Not to Trump? Impact of Competition on Innovations of IT Industry
Posted: 20 Aug 2018
Date Written: August 7, 2018
Innovation and competition are two major pillars in the IT industry. In this paper, we examine the causal relationship between product market competitiveness and the innovations in the IT industry. We measure the innovations from both the quantity (number of patents) and the quality (number of non-self citations) perspectives. Based on Herfindahl-Hirschman Index and natural experiments, we find robust evidence that the competition has a positive effect on the innovations of the IT industry. Specifically, after the exogenous shock to the market (import tariff cuts and thus increased industry competition), the number of patents per IT firm increases by 27.3% and the number of non-self citations per IT firm increases by 38.2% on average. The effects are more pronounced in the more competitive sectors.
Keywords: Product Market Competition, Innovation, Information Technology, Patent, Import Tariff
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