Competition and Growth: Reconciling Theory and Evidence

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Overview

Though competition occupies a prominent place in the history of economic thought,among economists today there is still a limited, and sometimes contradictory, understanding of its impact. In Competition and Growth, Philippe Aghion and Rachel Griffith offer the first serious attempt to provide a unified and coherent account of the effect competition policy and deregulated entry has on economic growth.The book takes the form of a dialogue between an applied theorist calling on "Schumpeterian growth" models and a microeconometrician employing new techniques to gauge competition and entry. In each chapter, theoretical models are systematically confronted with empirical data, which either invalidates the models or suggests changes in the modeling strategy.

Aghion and Griffith note a fundamental divorce between theorists and empiricists who previously worked on these questions. On one hand, existing models in industrial organization or new growth economics all predict a negative effect of competition on innovation and growth: namely, that competition is bad for growth because it reduces the monopoly rents that reward successful innovators. On the other hand, common wisdom and recent empirical studies point to a positive effect of competition on productivity growth. To reconcile theory and evidence, the authors distinguish between pre- and post-innovation rents, and propose that innovation may be a way to escape competition, an idea that they confront with microeconomic data. The book's detailed analysis should aid scholars and policy makers in understanding how the benefits of tougher competition can be achieved while at the same time mitigating the negative effects competition and imitation may have on some sectors or industries.

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What People Are Saying

From the Publisher
"A useful book full of careful measurement of the incentives, institutions, and causal flows in the knowledge economy. Shows both the importance of the knowledge economy (now denied by fools on Wall Street) and how sound economic analysis applies to it (recently denied by the same fools.)"—Timothy Bresnahan, Landau Professor of Technology in the Economy and Chair,Department of Economics, Stanford University

"Aghion and Griffith explain the heretofore confused relationships between competition and innovation with exemplary analytic clarity. Their empirical evidence on competition and economic growth shows the value of blending carefully argued theory with thoughtfully assembled statistics."—Timothy Bresnahan, Landau Professor of Technology in the Economy and Chair, Department of Economics, Stanford University

"Whereas the president of France and the chancellor of Germany believe that national or European 'champions,' assisted by the state and unfettered by competition policy, are best for providing innovations at the frontiers of science and technology and for economic growth, the reader of this book will learn that the facts are different. At the technological frontier, innovations are driven by competition and by the desire to escape competitive pressures. With imaginative theoretical modelling and sophisticated empirical analysis, Aghion and Griffith solve outstanding puzzles and show that the effects of competition on innovations and growth depend on proximity to the technological frontier. This work provides the standard for future research."—Martin Hellwig,Max Planck Institute for Research on Collective Goods, Bonn

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Product Details

  • ISBN-13: 9780262512022
  • Publisher: MIT Press
  • Publication date: 3/31/2008
  • Series: Zeuthen Lectures
  • Edition description: New Edition
  • Pages: 120
  • Product dimensions: 6.00 (w) x 9.00 (h) x 0.31 (d)

Meet the Author

Philippe Aghion is Robert C. Waggoner Professor of Economics at Harvard University. Aghion is coauthor (with Peter Howitt) of Endogenous Growth Theory (MIT Press,1997).

Rachel Griffith is Deputy Director at the Institute for Fiscal Studies (IFS) and a Reader inIndustrial Organization at University College London.

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Table of Contents

1 A divorce between theory and empirics 7
2 Revisiting common wisdom 33
3 Reconciling theory and evidence 51
4 The escape entry effect 67
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