Market competition and firm productivity and innovation: Responses in Mexican manufacturing industries

This paper investigates the causal relationship between competition and firm innovation and the impact of competition on firm productivity in the Mexican manufacturing sector. We use the analytical framework proposed by Aghion et al. (2005) and evaluate their central hypothesis. We use firm-level data from the Mexican manufacturing survey over the period 2009-2017. Our results show a negative linear relationship between competition and the intensity of firm innovation investment. These results are primarily due to the substantial technological disparity that exists across firms within sectors, where most firms compete very far from the leaders.