Date Added: Jun 2010
This paper provides new evidence on the relationship between innovation, competition and distance to the technology frontier, using enterprise surveys from 40 developing and transition countries. Different from previous empirical studies, the distance to frontier is measured by a firm's technology level relative to its main competitor. This self-reported comparison allows capturing a crucial determinant of a firm's business strategy and its response to competition. Private enterprises account for a substantial fraction of investment in innovation, which is widely recognized as a major driver of economic growth. These firms base their investment decisions on the opportunities and constraints given by their business environment.