R&D Spillovers and Product Market Competition

The paper builds a theoretical framework suggesting that the product market competition may affect the benefits accruing to the firms from intra-industry R&D spillovers. We have used dynamic panel data modelling (system-GMM estimator) to test our hypothesis to avoid possible endogeneity. The empirical analysis based on panel data of Indian manufacturing firms supports the earlier findings that significant R&D spillovers are present in the Indian manufacturing industry. More importantly, the findings suggest that the product market competition may determine the extent of spillovers emanating from R&D investments. However, the results depend on the choice of the parameter used to measure the level of competition. When Price–Cost Margin (PCM) is used, we find that stronger R&D spillovers are present among the firms operating under low competition. The results are contrary to this when PCM is replaced by the Herfindahl–Hirschman Index (HHI).