Abstract

Summary: Using a model of purposive R&D activity and human capital accumulation, this paper studies the impact of product market competition on research effort and economic growth. Innovation is postulated to take place by combining with constant returns to scale human capital and the existing stock of disembodied knowledge. In the long-run, competition always affects R&D investment while its impact on growth (driven by skill acquisition) depends on the way product market rivalry is parameterized. These results are discussed in the light of recent macroeconomic evidence and interpreted in terms of the interplay between the allocative-efficiency and the dynamic-efficiency effects.