Abstract
This paper studies factors shaping firm R&D investment, entry and exit, and productivity. In specific, we examine the impact of accessibility of other firms’ technological knowledge on firm performance, and to what extent the technology spillover could be favorable in front of countervailing localized competition. This study investigates these issues using data of plants in Taiwan electrical and electronics industry. The empirical results suggest that technology spillovers stimulate firms to conduct R&D and tend to raise firm productivity directly. Localized competition reduces the returns to R&D investments and thus decreases firms’ incentive to apply innovation but no direct influences on firm productivity. We finally examine whether technology spillovers and localized competition are important determinants of firm entry and exit decisions. While technology spillovers attract new firms entry and reduce firm mortality rates, tough market competition declines the entry rates and accelerates firm failure rates.