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Parallel Imports and Innovation in an Emerging Economy

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  • A. Mantovani
  • A. Naghavi

Abstract

This paper studies the consequences of parallel import (PI) on process innovation of firms heterogeneous in their production technology. In an international setting where foreign markets differ with respect to their intellectual property rights regime, a move by a technologically inferior firm to exploit a new unregulated market can result in imitation and PI. The impact of PI on innovation is determined by the degree of heterogeneity between firms and trade costs. Increasing trade costs shifts from the market share losses brought by PI from the more to the less productive firm. This induces the former to invest more in R&D. At this point, sales in the foreign market become a determinant of the R&D decision by the technologically inferior firm. For low levels of firm heterogeneity, PI increases output by this firm targeted for the unregulated market, hence increases its Innovation efforts. A tariff policy accompanied by opening borders to PI only increases welfare when the technological gap between the two firms are sufficiently large.

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Paper provided by Dipartimento Scienze Economiche, Universita' di Bologna in its series Working Papers with number 688.

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Date of creation: Jan 2010
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Handle: RePEc:bol:bodewp:688

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  1. Richardson, Martin, 2002. "An elementary proposition concerning parallel imports," Journal of International Economics, Elsevier, Elsevier, vol. 56(1), pages 233-245, January.
  2. Jung Hur & Yohanes E. Riyanto, 2006. "Tariff policy and exhaustion of intellectual property rights in the presence of parallel imports," Oxford Economic Papers, Oxford University Press, vol. 58(3), pages 549-568, July.
  3. Grossman, Gene & Lai, Edwin, 2006. "Parallel Imports and Price Controls," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5779, C.E.P.R. Discussion Papers.
  4. Leahy, Dermot & Neary, J Peter, 1995. "Public Policy Towards R&D in Oligopolistic Industries," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1243, C.E.P.R. Discussion Papers.
  5. Horst Raff & Nicolas Schmitt, 2005. "Why Parallel Trade may Raise Producers Profits," CESifo Working Paper Series 1503, CESifo Group Munich.
  6. Ganslandt, Mattias & Maskus, Keith E., 2005. "Vertical Distribution, Parallel Trade, and Price Divergence in Integrated Markets," Working Paper Series, Research Institute of Industrial Economics 639, Research Institute of Industrial Economics.
  7. Changying Li, 2006. "Competition, Parallel Imports And Cost-Reducing Innovation," Scottish Journal of Political Economy, Scottish Economic Society, Scottish Economic Society, vol. 53(3), pages 377-397, 07.
  8. Keith E. Maskus & Yongmin Chen, 2004. "Vertical Price Control and Parallel Imports: Theory and Evidence," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 12(4), pages 551-570, 09.
  9. Valletti, Tommaso M., 2006. "Differential pricing, parallel trade, and the incentive to invest," Journal of International Economics, Elsevier, Elsevier, vol. 70(1), pages 314-324, September.
  10. Tommaso Valletti & Stefan Szymanski, 2006. "Parallel Trade, International Exhaustion and Intellectual Property Rights: A Welfare Analysis," CEIS Research Paper, Tor Vergata University, CEIS 75, Tor Vergata University, CEIS.
  11. Zigic, Kresimir, 1998. "Intellectual property rights violations and spillovers in North-South trade," European Economic Review, Elsevier, Elsevier, vol. 42(9), pages 1779-1799, November.
  12. Li, Changying & Maskus, Keith E., 2006. "The impact of parallel imports on investments in cost-reducing research and development," Journal of International Economics, Elsevier, Elsevier, vol. 68(2), pages 443-455, March.
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