The Relationship between Performance, Innovation and Competition in Turkish Manufacturing Industry

The relationship between performance and innovation is covered most extensively in neoclassical economic theory and Schumpeterian approach. The neoclassical theory predicts that innovation emerges in competitive markets while Schumpeterian approach predicts it will emerge in imperfect competitive markets. Using data for the period 2008-2013, this study investigates the relationship between innovation and competition level in the Turkish Manufacturing Industry. Performance variables of the study are net profit margin, return on assets and return on equity. R&D intensity is innovation indicator. Industrial competition level is measured by Herfindahl-Hirsckman Index. The results of Two-Step System Generalized Method of Moments analysis show that R&D intensity affects positively performance variables in contrast one lag of R&D effects negatively. Furthermore, competition intensity also improves performance. Positive coefficient of R&D variable supports the view of innovation has the characteristics of providing competitive advantage. The negative coefficient of R&D lag indicates the problems related to the protection of intellectual property right. This finding can be interpreted that innovation operations are imitated approximately after a period. The positive effect of competition intensity supports the prediction of Schumpeterian approach