Parallel Imports and Innovation in an Emerging Economy
AbstractThis 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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Bibliographic InfoPaper provided by Dipartimento Scienze Economiche, Universita' di Bologna in its series Working Papers with number 688.
Date of creation: Jan 2010
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Other versions of this item:
- Andrea Mantovani & Alireza Naghavi, 2010. "Parallel Imports and Innovation in an Emerging Economy," Center for Economic Research (RECent) 038, University of Modena and Reggio E., Dept. of Economics.
- Andrea Mantovani & Alireza Naghavi, 2010. "Parallel Imports and Innovation in an Emerging Economy," Working Papers 2010.40, Fondazione Eni Enrico Mattei.
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-02-05 (All new papers)
- NEP-INT-2010-02-05 (International Trade)
- NEP-IPR-2010-02-05 (Intellectual Property Rights)
- NEP-MIC-2010-02-05 (Microeconomics)
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