Competition, Research and Development Expenditure and Innovation in Sub-Saharan Africa. Is there an inverted-U Relationship?

This paper explores the relationship between competition, Research and Development expenditure, and innovation in developing countries in Sub-Saharan Africa. To this end, firm-level survey data for 1033 firms in ten developing countries in Sub-Saharan Africa from the World Bank's enterprise surveys are used. The paper uses a conditional mixed process estimator (CMP) to estimate a simultaneous equation model system composed of equations for research and development expenditures, innovation, and competition. The findings confirm an inverted-U relationship between competition and research expenditures. The results suggest that a firm's research efforts increase with increases in competition but at a diminishing rate and finally decreases at high levels of competition. Further, innovation production function indicates that expenditures on R&D have a positive and significant effect on innovation outcomes. These results are robust across several sensitivity tests. The paper adds to the limited existing research on competition, R&D expenditure, and innovation in developing countries.