Competition, Imitation, and Technical Change : Quality vs. Variety
Some researchers have documented that the path of development is remarkably related to the pattern of sectoral diversification. Others have highlighted the relation between productive specialization and economic progress. This paper explores the ro...
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| Language: | English |
| Published: |
2012
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| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20090828081350 http://hdl.handle.net/10986/4221 |
| Summary: | Some researchers have documented that
the path of development is remarkably related to the pattern
of sectoral diversification. Others have highlighted the
relation between productive specialization and economic
progress. This paper explores the role of product market
competition and intellectual property rights protection in
the pattern of sectoral diversification. The paper confirms
the insight of the innovation literature, that competition
induces firms to specialize and upgrade the quality of
existing goods. However, it reveals a new force, called the
imitation effect, through which competition biases technical
change toward product diversification. The paper shows that
if knowledge spillovers increase with imitation, or the
degree of product substitution is high, weak protection of
property rights encourages firms to create low-quality
goods, thereby directing technical change toward
diversification. The predictions are tested with data on
Italian firms' innovation activity. They are found to
be consistent with observed behavior. |
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