Productivity Growth and Competition in Spanish Manufacturing Firms: What Has Happened in Recent Years?

XREAP No. 2006-09

45 Pages Posted: 1 Jun 2011

See all articles by Agusti Segarra Blasco

Agusti Segarra Blasco

Rovira i Virgili University

Mercedes Teruel

Rovira i Virgili University

Date Written: December 1, 2006

Abstract

This paper addresses the issue of the relationship between productivity and market competition. In comparison to the economies of other European countries, the Spanish economy has been growing, while productivity growth has stagnated. Here we provide empirical evidence about the relationship between productivity and market competition from Spanish manufacturing firms at firm level between 1994 and 2004. Correcting for selection bias, our study pays special attention to the patterns of productivity growth between openness and non-openness firms. When market competition increases the effect on firms operating in domestic markets is positive but when the level of competition is high incentives to invest in innovation and productivity gains disappear. The empirical relationship between competition and productivity is an inverted U-shape, where productivity growth is highest at intermediate levels of competition. The productivity growth of firms operating in international markets is higher than that of non-openness firms, but when market competition rises they moderate their productivity growth. Our empirical results suggest that the correct competition policy in the Spanish economy should remove the barriers to competition in internal markets in order to increase the incentives for manufacturing firms to invest in innovation and productivity growth.

Keywords: Manufacturing industries, innovation, competitiveness, international trade, Heckman equation

JEL Classification: L25, O14, O33

Suggested Citation

Blasco, Agusti Segarra and Teruel, Mercedes, Productivity Growth and Competition in Spanish Manufacturing Firms: What Has Happened in Recent Years? (December 1, 2006). XREAP No. 2006-09, Available at SSRN: https://ssrn.com/abstract=1852246 or http://dx.doi.org/10.2139/ssrn.1852246

Agusti Segarra Blasco (Contact Author)

Rovira i Virgili University ( email )

Av. Universitat 1
Tarragona, Tarragona 43204
Spain

Mercedes Teruel

Rovira i Virgili University ( email )

Av. Universitat 1
Tarragona, Tarragona 43204
Spain

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