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R&D Spillovers and the Case for Industrial Policy in an Open Economy

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  • D Leahy
  • J.P. Neary

Abstract

In this paper we consider the case for subsidies towards firms which generate R&D spillovers in open economies. We show that many expected results are overturned in the presence of strategic behaviour by firms. Local R&D spillovers to other domestic firms may justify an R&D tax rather than a subsidy; R&D cooperation by local firms over-internalises the externality and also justifies an R&D tax; and international spillovers which benefit foreign firms may justify a subsidy, even though the government cares only about the profits of home firms.

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File URL: http://cep.lse.ac.uk/pubs/download/DP0345.pdf
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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0345.

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Date of creation: Apr 1997
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Handle: RePEc:cep:cepdps:dp0345

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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