How does competition affect the relationship between innovation and productivity? Estimation of a CDM model for Norway

The paper investigates the effects of industry-level competition on firm-level innovation and productivity. We propose a refined version of the CDM model that analyses the impacts of competition on four interrelated stages of the innovation process: the choice of a firm to engage in innovation, its R&D intensity, its innovation output and labour productivity. We test the model on a firm-level panel dataset based on the last three waves of the innovation survey for Norway (CIS3, CIS4 and CIS5). The econometric results provide empirical support for the refined version of the CDM model. They show that enterprises in oligopolistic sectors have on average a greater propensity to engage in innovative activities and tend to invest a greater amount of resources in R&D. On the other hand, firms in competitive industries are characterised by a stronger impact of innovation input on their technological and economic performance.