Regulators and competition spurring or retarding innovation in the telecommunications sector?

This paper empirically explores how technology policy affects innovation behaviour in the telecommunications sector. Our empirical analysis aims at shedding light on the following highly topical issues: (I) Whether opening up the domestic market to competition spurs innovative activity?, (ii) Whether the presence of independent regulatory agency influence innovation behaviour of telecommunications operators?, and (iii) What is the direction of Granger-causality between innovation creation and technology diffusion in the communications sector? We develop an econometric model that takes into account the dynamic, non-linear nature of the innovation process and interdependency between equations for a patent count variable, R&D and technology diffusion. We use data from 61 major telecommunications operators between the years 1991 and 1996 to investigate how technology policy has influenced their innovative activities, i.e. their R&D expenditures and the number of patent applications, and the diffusion of communications technologies in their domestic markets. – Innovation ; technology diffusion ; telecommunications ; technology policy