Do Competition Improve Persistence in Innovation Effort? Sectoral Patterns and Evidence from India

This paper studies the persistence of innovation efforts by Indian manufacturing firms and how the innovation effort gets affected by the extent of industry-wide competition and the import of technology. The study is based on a panel of listed firms observed continuously over 10 years from 2006 to 2015. Using a dynamic panel structure with Heckman correction, we find evidence of the persistence of innovation effort among the firms; however, the persistence diminishes as the industry-level competition increases. The marginal effect of the competition is lower, and it changes sign if external sources of R&D, such as technology and raw material import, are controlled. Hence, evidence indicates the ‘path dependency’ of R&D expenditures and persistence of innovation effort, but it is sensitive to the extent of competition in the firm’s principal market and import. The findings also suggest that despite opening up the economy since the early 1990s, technology import is still complementing the domestic R&D in India and the persistence of innovation efforts.