The Impact of Innovation on the Market Share of Iranian Textile and Leather Industries (Nonlinear Approach)



The main purpose of this paper is to investigate the effect of innovation on market share in textile, leather and apparel industries (4-digit codes) in Iran. According to the literature on the industrial economics, the relationship between innovation and market share is nonlinear (an inverted-U shaped). This relationship is known as the Schumpeter hypothesis. This paper is trying to investigate the Schumpeter's hypothesis using data on the industrial firms of 10+ workers during the period 1995-2007. For this purpose, the method of nonlinear method of the logistic smooth transition threshold (LSTR) applied to estimate the model. The results confirm the existence of a non-linear relationship between the innovation and market share in the textile, leather and apparel industries. Hence, the support and encouragement of innovative activities by government would enhance the market share of these industries. In addition, the nonlinear relationship between market share and innovation in these industries shows that there exists an optimal level of R&D costs which maximize the industries’ market share.