Innovation and Competition in EU15 : Empirical Evidence on the Lisbon Decade and Beyond

In March 2000, the Lisbon Summit set the European Union the goal of becoming ‘the most dynamic and competitive knowledge-based economy in the world' by 2010. This chapter aims to ascertain the extent to which various indicators of innovation in EU15 have improved and whether such improvement has been driven by higher levels of competition in EU15 economies. To this end, we provide a descriptive account of the competition and innovation indicators from 1980-10. Then, we discuss the relationship between market structure (level of competition) and innovation; and estimate the impact of the former on the latter. We report that aggregate innovation measures for EU15 have been increasing over the 1980-08 period and there does not seem to be a significant change in the trend during the Lisbon decade (2000-08). Furthermore, increasing levels of innovation have been associated with increasing economic rents – i.e., with further departures from the perfect-competition baseline. Fixed-effect panel-data regression results point out a positive and statistically significant relationship between economic rents and various measures of innovations