The role of market power in driving innovation and productivity: a firm-level study of emerging ASEAN

Abstract

PurposeThe primary purpose of the study is to examine the role of market power in driving innovation and productivity of intangible intensive firms of eight emerging economies of the Association of Southeast Asian Nations (ASEAN-8).Design/methodology/approachThere is hardly any study on emerging economies that explored the causal chain of R&D–innovation–productivity, considering the role of market power in a structural model. Taking advantage of the availability of firm-level data and following the extended version of the Crépon, Duguet and Mairesse (CDM) model, we intend to fill the gap. The CDM model first explores the link between R&D and innovation, then the latter's impact on productivity. Besides, it captures sectoral heterogeneity and the differing roles of technological and institutional innovation on productivity.FindingsThe manufacturing firms that held a higher markup had a more significant contribution to driving innovation than services one. While institutional innovation affected productivity positively, technological innovation had the opposite impact. Nevertheless, firms' higher degree of monopoly, in general, worsened productivity outcomes. The estimated results are robust to a range of alterations.Practical implicationsThe study offers implications for the competition policy of ASEAN.Originality/valueThe sample of this study accounts for almost half of the world's best-performing emerging economies. Thus, the findings are likely to contribute to the thin literature on market power's role in driving innovation and productivity in the intangible economy of emerging markets.