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Cost Effectiveness of R&D and Strategic Trade Policy

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Author Info
Praveen Kujal (Universidad Carlos III de Madrid)
Juan Ruiz (Banco de España)

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Abstract

We analyze how the cost-effectiveness of R&D influences the incentives for governments to impose export subsidies. Governments first impose an export subsidy, or a tax. After observing export policy, firms invest in cost reducing R&D and subsequently compete in the market. Governments subsidize exports under Cournot competition. Under Bertrand competition and for linear demands and constant marginal costs, export subsidies are positive whenever R&D is sufficiently cost-effective at reducing marginal costs, and negative otherwise. The trade policy reversal found in models without endogenous sunk costs disappears if R&D is sufficiently cost-effective. Thus, output subsidies seem more robust than implied by the recent literature.

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Publisher Info
Article provided by Berkeley Electronic Press in its journal Topics in Economic Analysis & Policy.

Volume (Year): 7 (2007)
Issue (Month): 1 ()
Pages: 1502-1502
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Handle: RePEc:bep:eaptop:v:7:y:2007:i:1:p:1502-1502

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Related research
Keywords: product differentiation strategic trade policy policy reversals R&D

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Find related papers by JEL classification:
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies

References listed on IDEAS
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  1. Josep M. Vilarrubia, 2006. "Neighborhood effects in economic growth," Banco de España Working Papers 0627, Banco de España. [Downloadable!]
  2. Leahy, Dermot & Neary, J Peter, 2001. "Robust Rules for Industrial Policy in Open Economies," CEPR Discussion Papers 2731, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  3. Arturo Galindo & Alejandro Izquierdo & José M. Montero, 2006. "Real exchange rates, dollarization and industrial employment in Latin America," Banco de España Working Papers 0601, Banco de España. [Downloadable!]
    Other versions:
  4. Bagwell, Kyle & Staiger, Robert W., 1994. "The sensitivity of strategic and corrective R&D policy in oligopolistic industries," Journal of International Economics, Elsevier, vol. 36(1-2), pages 133-150, February. [Downloadable!] (restricted)
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  5. Dermot Leahy, J. Peter Neary, 2001. "Robust rules for industrial policy open economies," Journal of International Trade & Economic Development, Taylor and Francis Journals, vol. 10(4), pages 393-409, December. [Downloadable!] (restricted)
  6. Ricardo Gimeno & Juan M. Nave, 2006. "Genetic algorithm estimation of interest rate term structure," Banco de España Working Papers 0634, Banco de España. [Downloadable!]
  7. Juan F. Jimeno & Esther Moral & Lorena Saiz, 2006. "Structural breaks in labor productivity growth: the United States vs. the European Union," Banco de España Working Papers 0625, Banco de España. [Downloadable!]
  8. Neary, J Peter & Leahy, Dermot, 2000. "Strategic Trade and Industrial Policy towards Dynamic Oligopolies," Economic Journal, Royal Economic Society, vol. 110(463), pages 484-508, April. [Downloadable!] (restricted)
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  9. Enrique Alberola & Rodrigo César Salvado, 2006. "Banks, remittances and financial deepening in receiving countries. A model," Banco de España Working Papers 0621, Banco de España. [Downloadable!]
  10. Ruben Segura-Cayuela, 2006. "Inefficient Policies, Inefficient Institutions and Trade," 2006 Meeting Papers 502, Society for Economic Dynamics. [Downloadable!]
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  11. Neary, J. Peter, 1994. "Cost asymmetries in international subsidy games: Should governments help winners or losers?," Journal of International Economics, Elsevier, vol. 37(3-4), pages 197-218, November. [Downloadable!] (restricted)
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  12. Maggi, Giovanni, 1996. "Strategic Trade Policies with Endogenous Mode of Competition," American Economic Review, American Economic Association, vol. 86(1), pages 237-58, March. [Downloadable!] (restricted)
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