The Effect of Competition Law on Innovation: A Cross-National Statistical Analysis

Innovation leads to greater diversity of products, higher product quality, and/or lower costs of production and thus has been widely recognized as a key driver of economic growth. Many political economists have long seen innovation, or more precisely the incentive to innovate, as a key benefit of the competition that is a hallmark of a market economy. Accordingly, creating and maintaining this incentive to innovate is a central economic rationale for adopting and maintaining antitrust or competition laws and policies. Empirical analyses of the effect of competition law on innovation, however, are scarce, almost all based on U.S. data, and yield mixed results. This chapter provides the first cross-sectional and panel analyses of the relationship between competition law and innovation at the aggregate, national level for a large number of jurisdictions, including a large sample of developing countries. We find that the adoption of competition laws indeed has a strongly statistically significant and positive effect on the rate of innovation cross-nationally and over time, as measured by the number of patent filings.