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Réglementation, comportement stratégique et innovation :
Réglementation, comportement stratégique etinnovation :
Application aux industries des pays de l�OCDE.
Ivan Ledezma (ivan.ledezma@dauphine.fr)
Séminaire Repères �Réglementation et innovation�
Octobre 2009
Réglementation, comportement stratégique et innovation :
Introduction
Motivation
I Concerns about weak European innovation performancerelative to the US
I �Common wisdom�:I Product market competition would be a key engine ofinnovation, specially in leading industries/countries
I The solution : market liberalisation/deregulation (and othercomplementary reforms)
I However, this vision may neglect several important issues ininnovative activity such as strategic behaviour and leaders�innovation
Réglementation, comportement stratégique et innovation :
Introduction
Plan
1. Motivation
2. Theoretical background
3. Two illustrations :
3.1 Market regulation, innovation and distance to frontier(Amable, Demmou and Ledezma, 2009)
3.2 Market regulation & R&D intensity (Ledezma, 2009)
4. Comparison with other empirical studies
5. Concluding remarks
Réglementation, comportement stratégique et innovation :
2. Theoretical background
2. Theoretical background
Réglementation, comportement stratégique et innovation :
2. Theoretical background
Theoretical backgroundCompetition & innovation incentives : still an open question
I Negative sign: monopolistic pro�ts as innovation rewardsI From Schumpeter (1936) to most of innovation based growthmodels (ex: Grossman & Helpman,1991; Aghion et Howitt,1992; Segerstrom, 1998; Li, 2003; etc.)
I Positive sign: competition as a "slack-reducing" deviceI Managerial literature (Porter, 1990; Schmidt, 1997)
I Both:I inverted U-shape (Aghion et al., 2005)I U-shape (Tishler & Milstein, 2009)I non-monotone (Boone, 2001)
Réglementation, comportement stratégique et innovation :
2. Theoretical background
Theoretical backgroundCompetition & innovation incentives : still an open question (ctd.)
I Leaders do innovate (Chandler, 1990; Malerba, 1997)I If the leader�s innovation makes harder the leapfrogging offollowers the inverted U-shape pattern no longer holds(Amable, Demmou & Ledezma, 2009)
I This may change the relationship between competition andinnovation conditional on the distance to technological frontier
I Entry thread and innovative leadersI Leaders tend to be more aggressive than followers in terms ofR&D investment (Etro, 2007)
I This may discourage followers ! the monopoly may be there�ect of �erce competition
I But still yield more innovationI This may not be the case if they spend resources in obtainingadvantages (Ledezma, 2009)
Réglementation, comportement stratégique et innovation :
2. Theoretical background
Theoretical backgroundCompetition & innovation incentives : still an open question (ctd.)
I Leaders do innovate (Chandler, 1990; Malerba, 1997)I If the leader�s innovation makes harder the leapfrogging offollowers the inverted U-shape pattern no longer holds(Amable, Demmou & Ledezma, 2009)
I This may change the relationship between competition andinnovation conditional on the distance to technological frontier
I Entry thread and innovative leadersI Leaders tend to be more aggressive than followers in terms ofR&D investment (Etro, 2007)
I This may discourage followers ! the monopoly may be there�ect of �erce competition
I But still yield more innovationI Not the case if they spend resources in obtaining advantages(Ledezma, 2009)
Réglementation, comportement stratégique et innovation :
3. Two Illustrations
3. Two illustrations
Réglementation, comportement stratégique et innovation :
3. Two Illustrations
Regulation, innovation and distance to frontier (ADL 2009)The received argument
Aghion et al. (2005)�s model
Unleveled sector Leveled sectorFirm 1 Firm 1 Firm 2l gapFirm 2
Schumpeterian e¤ects should predominate for laggards but at theleading edge �rms innovate to "escape" from competition
Réglementation, comportement stratégique et innovation :
3. Two Illustrations
Regulation, innovation and distance to frontier (ADL 2009)Allowing leaders to innovate
Assume that leading innovation changes the technologicalparadigm and makes the catching-up process of the follower moredi¢ cultResults
I Multiple equilibriaI If the e¤ect of the leader on laggard�s innovation is highenough, competition might be detrimental to innovation
Réglementation, comportement stratégique et innovation :
3. Two Illustrations
Regulation, innovation and distance to frontier (ADL 2009)Allowing leaders to innovate (multiple equilibria)
Réglementation, comportement stratégique et innovation :
3. Two Illustrations
Regulation, innovation and distance to frontier (ADL 2009)The e¤ect of competition on innovation (low impact of the leading innovation onfollowers)
Competition foster innovation, increasingly so as one moves closer to thetechnology frontier
Réglementation, comportement stratégique et innovation :
3. Two Illustrations
Regulation, innovation and distance to frontier (ADL 2009)The e¤ect of competition on innovation (high impact of the leading innovation onfollowers)
Low equilibrium : the positive impact of competition on innovationdecreases as one moves closer to the frontier
Réglementation, comportement stratégique et innovation :
3. Two Illustrations
Regulation, innovation and distance to frontier (ADL 2009)The e¤ect of competition on innovation (high impact of the leading innovation onfollowers)
High-equilibrium: detrimental e¤ect of competition on innovation,increasingly so as one move closer to the frontier
Réglementation, comportement stratégique et innovation :
3. Two Illustrations
Regulation, innovation and distance to frontier (ADL 2009)Data
I 17 OECD countries; 15 manufacturing industriesI 1979-2003
Industry List Country List15-16 Food products, beverages and tobacco Austria17-19 Textiles, textile products, leather and footwear Belgium20 Wood and products of wood and cork Denmark21-22 Pulp, paper, paper products, printing and publishing Finland24 Chemicals and chemical products France25 Rubber and plastics products Germany26 Other non-metallic mineral products Greece27 Basic metals Ireland28 Fabricated metal products, except machinery and equipment Italy29 Machinery and equipment, n.e.c. Japan30 O¢ ce, accounting and computing machinery Netherland31 Electrical machinery and apparatus, nec Norway32 Radio, television and communication equipment Portugal33 Medical, precision and optical instruments, watches and clocks Spain34 Motor vehicles, trailers and semi-trailers Sweden
UKUS
Réglementation, comportement stratégique et innovation :
3. Two Illustrations
Regulation, innovation and distance to frontier (ADL 2009)Data
I GGDC-60 Industry : value added, hours worked, implicitde�ators
I OECD-STAN : trade indicators, investment series, benchmarkfor GGDC series
I EUROSTAT: Patents (Technological areas linked to Industryclassi�cation; EPO )
I Timmer, Ympa and van Ark (2007): Purchasing powerparities at the industry level
Réglementation, comportement stratégique et innovation :
3. Two Illustrations
Regulation, innovation and distance to frontier (ADL 2009)Regulation proxies (OECD)
I PMR: product market regulation (barriers); national scope (1998,2003) (cf. Conway, Janod & Nicoletti, 2005)
I PMR Public: Component of PMR relative to the size and the scopeof the State (Cf. Conway, Janod & Nicoletti, 2005)
I ETCR: Regulation in 7 network services (Cf. Conway & Nicoletti,2006). Time series by country.
I REGIMP: Knock-on e¤ect of regulation in (i) network services, (ii)�nancial services and (iii) retail sectors (Cf. Conway & Nicoletti,2006). Time series cross section (country-industry) data.
Réglementation, comportement stratégique et innovation :
3. Two Illustrations
Regulation, innovation and distance to frontier (ADL 2009)Methodology
pit = α pit�1 + β1 clit + β2 rit � clit + β3 rit + β4xit + εit
where εit = ηi + µit and
I pit : InnovationI clit : Closeness to frontier
AitmaxfAi 0tg
I rit : Market regulationI rit � clit : Interaction term (regulation * closeness)I Controls xit : Externalities, K/L,import penetration, labourmarket protection, �nancial deepness, year dummies,country-industry �xed e¤ects
Réglementation, comportement stratégique et innovation :
3. Two Illustrations
Regulation, innovation and distance to frontier (ADL 2009)
Réglementation, comportement stratégique et innovation :
3. Two Illustrations
Regulation, innovation and distance to frontier (ADL 2009)Tests
I Within-group / Dynamic panel bias correction (Bruno, 2005)I System-GMMI +Full set of controlsI Translog speci�cation
Réglementation, comportement stratégique et innovation :
3. Two Illustrations
Regulation, innovation and distance to frontier (ADL 2009)Marginal e¤ect of regulation
Bruno (2005) regression System-GMM regression
Réglementation, comportement stratégique et innovation :
3. Two Illustrations
Regulation, innovation and distance to frontier (ADL 2009)Marginal e¤ect of regulation
System-GMM regression (extended) System-GMM regression translog
Réglementation, comportement stratégique et innovation :
3. Two Illustrations
Regulation & R&D intensity (L 2009)Strategic entry barriers
I Firms use a set of multiple strategies to protect their rents(Levin et al., 1987; Cohen et al., 2000; Cohen et al., 2002;Nagaoka, 2009)
I The threat of competition can trigger defensive reactions (ofinsiders) and self-selection (of outsiders)
I Regulation, as constraining device, can have non trivial e¤ectson innovative e¤ort and on market structure
Réglementation, comportement stratégique et innovation :
3. Two Illustrations
Regulation & R&D intensity (L 2009)Technological bias
Réglementation, comportement stratégique et innovation :
3. Two Illustrations
Regulation & R&D intensity (L 2009)Game structure
Asymmetries
I The new innovator can change the quality mix and induce a"technological bias" ( i.e. θj > 0)
I Prospective entrants have to develop additional knowledge andcapabilities to replicate and improve the new version
Stackelberg game
I R&D will not be pro�table for outsiders if the leader makes acredible commitment of high R&D e¤ort
I The leader is credible if its relative advantage are high enough
I Regulation ψ increases the cost of "bias"
Réglementation, comportement stratégique et innovation :
3. Two Illustrations
Regulation & R&D intensity (L 2009)Two possible equilibriums
ψ
1 −
Regulation ψ
Credibility level
[ ]11 −−− σγ
Schumpeterianreplacement
Permanent
Monopolist
Technologicalneutrality
θξcos
Réglementation, comportement stratégique et innovation :
3. Two Illustrations
Regulation & R&D intensity (L 2009)Main theoretical results
Above a certain threshold of regulation ψ > ψ
I The leader is not credibleI Schumpeterian replacement (but with a "lag")I R1: Regulation increases the labour share allocated to R&D.Its e¤ect is all the more important that the size of innovativesteps are bigger
Bellow this threshold ψ � ψ
I The leader is credibleI Zero R&D investment from outsiders (self-selection)I Permanent and innovative monopolist (limit case)I R2: Regulation reduces the labour share allocated to R&D
Réglementation, comportement stratégique et innovation :
Evidence
Regulation & R&D intensity (L 2009)Data
I Similar than ADL but for 14 countries and 14 manufacturingindustries
I ANBERD (OECD): R&D expenditure
Réglementation, comportement stratégique et innovation :
Evidence
Regulation & R&D intensity (L 2009)Test on R1
yit = α1 rit + α2 rit �HTi + α3 HTi + α5xit + εit
where εit = ηi + µit
I yit : R&D intensity (R&D/Added value)I rit : RegulationI HTi : 1 if High-tech (industries 30-33 ISIC Rev-3 : ICT +medical, precision and optical instruments...)
I Controls xit : R&D externalities, K/L , distance to thetechnology frontier, �nancial assets, year indicators
Réglementation, comportement stratégique et innovation :
Evidence
Regulation & R&D intensity (L 2009)Test on R1 (Dependent Variable: R&D/VA - Within-group estimates)
REGIMP ETCR PMR PMR-Public
R&D Spillovers 0.195*** 0.196*** 0.188*** 0.186***
(0.042) (0.040) (0.044) (0.050)
Regulation -0.166 0.019 -0.908*** 0.130
(0.125) (0.068) (0.240) (0.245)
Regulation x HT 1.739*** 0.715*** 0.826*** 2.076***
(0.225) (0.088) (0.144) (0.461)
Constant -1.789*** -2.768*** -2.050*** -3.797***
(0.628) (0.353) (0.385) (0.293)
Year dummies Yes Yes Yes Yes
Number of Obs 2754 2754 2754 2546
Number of groups 189 189 189 176
Marginal e¤ect 1.573*** 0.734*** -0.082 2.206***
(0.256) (0.117) (0.226) (0.438)
[0.597] [0.300] [0.384] [0.769][
Notes: Hubert-White corrected standard errors in round parentheses
and clustered at the industry level in squared brackets;
*, **,*** denote signi�cance at 10%, 5% and 1%, respectively
Réglementation, comportement stratégique et innovation :
Evidence
Regulation & R&D intensity (L 2009)Test on R1 (Dependent Variable: R&D/VA - Within-group estimates)
Robustness checks
I Full controls
I intra-group correlation
I De�nition of HT industries
I Fixed e¤ect decomposition (Plümper & Troeger, 2007)
Réglementation, comportement stratégique et innovation :
Evidence
Regulation & R&D intensity (L 2009)Test on R1 (Dependent Variable: R&D/VA - Within-group estimates)
Full ControlsREGIMP ETCR PMR PMR-Public
Regulation x HT 1.558*** 0.817*** 0.641*** 0.818*
(0.288) (0.123) (0.188) (0.418)
Marginal e¤ect 1.258*** 0.433*** 0.379 1.189***
(0.337) (0.147) (0.355) (0.396)
Réglementation, comportement stratégique et innovation :
Evidence
Regulation & R&D intensity (L 2009)Test on R1 (Dependent Variable: R&D/VA - Within-group estimates)
HT De�nition
REGIMP ETCR PMR PMR-Public
Regulation x HT2 1.088*** 0.481*** 0.568*** 1.314***
(0.167) (0.070) (0.114) (0.362)
Marginal e¤ect 0.891*** 0.501*** -0.367* 1.441***
(0.192) (0.101) (0.219) (0.319)
Réglementation, comportement stratégique et innovation :
Evidence
Regulation & R&D intensity (L 2009)Test on R1 (Dependent Variable: R&D/VA - FEVD)
Fixed e¤ect decomposition
REGIMP ETCR PMR PMR-Public
Regulation -0.166* 0.019 -0.666*** -0.550***
(0.090) (0.090) (0.027) (0.010)
Regulation x HT 1.739*** 0.715*** 0.826** 2.076**
(0.102) (0.048) (0.360) (0.973)
HT 5.226*** 0.466*** 0.893*** -0.643***
(0.015) (0.012) (0.060) (0.062)
Marginal e¤ect 1.573*** 0.734*** 0.161 1.526
(0.083) (0.058) (0.350) (0.975)
Réglementation, comportement stratégique et innovation :
Evidence
Regulation & R&D intensity (L 2009)Test on R2
We split the sample by
1. Low- & High- regulation environments
2. Country groups (Market based, Social democratic, Amable2003)
Réglementation, comportement stratégique et innovation :
Evidence
Regulation & R&D intensity (L 2009)Test on R2 (Dependent Variable: R&D/VA - FEVD estimates, REGIMP proxy)
�0.1 quantile > 0.5 quantile
R&D Spillovers -0.048*** 0.184***
(0.015) (0.012)
REGIMP -0.145 -0.733***
(0.164) (0.135)
REGIMP x HT -0.470** 4.153***
(0.216) (0.250)
HT 0.714 9.307***
(0.576) (0.467)
Marginal e¤ect -0.614*** 3.419***
(0.151) (0.223)
Réglementation, comportement stratégique et innovation :
Evidence
Regulation & R&D intensity (L 2009)Test on R2 (Dependent Variable: R&D/VA - OLS estimates, REGIMP proxy)
Country groups
I MB: Market-based (US, UK)
I SD: Social Democratic (Finland, Sweden, Denmark)
I CE: Continental Europe (Belgium, France, Germany,Norway,Ireland, Netherlands)
I ME: Mediterranean Europe (Italy, Spain)
I JP: Japan
Réglementation, comportement stratégique et innovation :
Evidence
Regulation & R&D intensity (L 2009)Test on R2 (Dependent Variable: R&D/VA - OLS estimates, REGIMP proxy)
MB SD CE ME JP
R&D Spillovers 0.329*** 0.074 -0.067 -0.202 0.187***
(0.096) (0.100) (0.098) (0.165) (0.037)
REGIMP -0.763*** -1.089*** 1.212*** 0.186 5.043***
(0.116) (0.181) (0.119) (0.525) (1.200)
Constant -4.534*** -6.134*** -2.515*** -6.483*** 14.166***
(0.479) (0.629) (0.522) (0.954) (2.350)
Year dummies Yes Yes Yes Yes Yes
ISIC 2-dig dummies Yes Yes Yes Yes Yes
Number of Obs 388 644 1118 396 208
Notes: Hubert-White standard errors in parentheses;
Réglementation, comportement stratégique et innovation :
Evidence
Regulation & R&D intensity (L 2009)Other results (�rm entry)
REGIMP REGIMP REGREF REGREF
Regulation 1.014*** 1.421*** 0.184*** 0.476***(0.147) (0.252) (0.065) (0.166)
Capital 0.195 0.073 0.114 0.255*(0.123) (0.131) (0.135) (0.131)
Valueadded 0.064 0.113* 0.002 0.005(0.068) (0.066) (0.070) (0.066)
year dummies No Yes No YesNumber of Obs 584 584 584 584Number of groups 64 64 64 64Note: Standard errors in parentheses* p<0.10, ** p<0.05, *** p<0.01
FirmEntry
Réglementation, comportement stratégique et innovation :
Other empirical studies
4. Comparison with other empirical studies
Réglementation, comportement stratégique et innovation :
Other empirical studies
EvidenceSelected studies on regulation and innovation
Performace Level Indicators Result
Nicoletti and Scarpetta (2003) ∆MFP Industry OECD positive interaction
Gri¢ th et al. (2006) R&D Industry SMP positive SMP e¤ect, but...
Conway,et al. (2006) ∆Y/L Industry OECD positive interaction
Inklaar et al. (2007) MFP Industry OECD rarely signi�cant
Arnold et al. (2008) TFP Firm industry OECD negative interaction, but...
Réglementation, comportement stratégique et innovation :
Other empirical studies
EvidenceCompetition and innovation (�rm level studies)
I Schumpeterian: Crépon, Duguet and Kabla (1995); Crépon, Duguetand Mairesse (1998); Crépon & Duguet (1997)
I "Trimming fat" : Nickell (1996); Bloom & Van Reenen (2007)
I Depending on proxy : Blundell, Gri¢ th and Van Reenen (1999)
I Inverted U-shape : Aghion et al. (2005); Aghion et al. (2009)
I Relativisation of the inverted U-shape : Askenazy, Cahn & Irac(2007); Tingvall & Poldahl (2006)
Réglementation, comportement stratégique et innovation :
Conclusion
Conclusion
I No evidence of innovation boosting e¤ect of deregulation atthe leading edge or in high-tech industries
I On the contrary systematic positive correlations are foundI Assessments about "appropriate" or "inappropriate"regulation are no way obvious in a second best world
I Other issuesI Competition, risk and the choice of the size of innovationI What does competition mean? two coexisting dimensions(absence of strategic behaviour & rivalry)
I What about regulation and competition?
Réglementation, comportement stratégique et innovation :
Conclusion
merci...
Réglementation, comportement stratégique et innovation :
Appendix
The Model
Rationale of the model
SuccessfulInnovation
Technological bias
Enough R&DAdvantages
Not enough R&DAdvantages
LeaderundertakesR&D
R&D notprofitable foroutsiders
Leader doesnot undertakeR&D
Outsiders carryout all R&D,but with bias
Regulationreduces the biasand increaseR&D ofoutsiders
Regulation impliesmore labour tobias and less R&Deffort of the leader
Réglementation, comportement stratégique et innovation :
Appendix
The Model
Réglementation, comportement stratégique et innovation :
Appendix
The Model
NorwayItalyPortugalSpainAustriaGreeceFranceBelgiumGermany
IrelandJapanUKFinlandDenmarkNetherlaSwedenUS
.08
.1.1
2.1
4.1
6.1
8
country
Means of REGIMP, REGIMP
GreeceItalyFrancePortugalIrelandBelgiumNetherlaDenmarkAustriaSpainNorwayFinlandGermanyJapanSweden
UK
US23
45
6
country
Means of REGREF, REGREF
Italy
FranceSpainPortugalFinlandBelgiumGermanyNorwayJapanAustriaNetherlaSweden
IrelandDenmarkUSUK1
1.5
22.
53
country
Means of PMR, PMR
NorwayGreeceFranceAustriaItalyFinland
GermanyBelgiumIrelandNetherlaSwedenSpainPortugalDenmark
UK
US
Japan01
23
45
country
Means of PMR_Public, PMR(Public)
Réglementation, comportement stratégique et innovation :
Appendix
The Model
Aggregate performance (% of the mean)
0%
50%
100%
150%
200%
250%
300%
350%
Austria
Belgium
Denmark
Finlan
d
France
German
y
Greece
Irelan
dIta
liaJa
pan
Netherl
and
Norway
Portug
al
Spain
Sweden UK US
Patenting Productivity PMR Firms/VA
Réglementation, comportement stratégique et innovation :
Appendix
The Model
Economic regulation
Administrative regulation
1.The numbers in brackets indicate the weight given to each lower level indicator in the calculation of the higher level indicator immediately above it.
The weights were derived by applying principal components analysis to the set of indicators in each of the main regulatory domains (state control, barriers to
entrepreneurship, barriers to trade and investment, economic regulation and administrative regulation). The same approach was used to derive the weights used
to calculate the indicators of inward and outwardoriented policies and the overall PMR indicator. The principal components analysis was based on
the original 1998 data.
2. Two indicators from the 1998 version of the PMR indicators ('Special voting rights' and 'Control of public enterprise by legislative bodies') have been combined into this indicator.
Outwardoriented policies (0.41)
State control (0.49)Barriers to
entrepreneurship(0.51)
Barriers to trade and investment(1.0)
Public ownership(0.56)
Involvement inbusiness operation
(0.44)
Product market regulation
Inwardoriented policies (0.59)
Barriers tocompetition
(0.22)
Scope of publicenterprise sector
(0.30)Price controls (0.45)
Licenses and permitssystem (0.55)
Administrative burdens forcorporation (0.36)
Explicit barriers to tradeand investment (0.70)
Regulatory andadministrative opacity
(0.48)
Administrativeburdens on
startups (0.30)
Regulatory barriers(1.0)
Legal barriers (0.30) Discriminatoryprocedures (0.24)
Other barriers(0.30)
Foreign ownershipbarriers (0.45)
Size of publicenterprise sector
(0.30)Use of command &control regulation
(0.55)
Communication andsimplification of rules
and procedures(0.45)
Administrative burdens forsole proprietor firms (0.30)
Direct control overbusiness
enterprises2
(0.40)
Antitrust exemptions(0.70)Sector specific administrative
burdens (0.34) Tariffs (0.31)
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