INNOVATION ACTIVITY OF FIRMS AND COMPETITION

The aim of the article is to investigate if there exists a systematic link between size of the firm, market concentration and R&D activity of firms. Three tentative results emerged from the regression analysis based on the firm balanced panel data 1998-2006. First it follows from a regression analysis that a positive relationship between size and R&D activity of the firm exists, which is non-linear however. Second the results indicate that a negative relationship between firm R&D personnel and industry concentration exists. If market concentration is a measure of competition than we can conclude that innovation is related to the competitive market structure. We arrived at the same conclusion when innovation was measured by intangible assets and competition was measured by Lerner index. Finally, our analysis concluded that although foreign firms are on average larger than domestic, a negative relationship between the foreign ownership of the firm and the number of R&D employees exists. In comparison to domestic firms, foreign firms have less R&D personnel.