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Beyond Trade Costs: Firms' Endogenous Access to International Markets

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  • Garcia Pires, Armando José

Abstract

Contrary to what has been standard in the international trade literature, we argue that firms' access to international markets should not be just reduced to exogenous factors such as trade costs. Instead, we defend that market access can also be endogenous, since firms can affect international trade patterns by acting strategically against rivals. In particular, we endogenize firms' competitiveness through commitment power advantages of R&D. In this setting we show that: (1) higher efficiency of R&D (like low trade costs) makes trade more easy (given that R&D increases the profitability of exports); (2) firms with higher commitment power in R&D are more competitive (since they have larger incentives to innovate) and as a result these firms also have better access to export markets.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5980.

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Date of creation: Dec 2006
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Handle: RePEc:cpr:ceprdp:5980

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Keywords: commitment power; endogenous asymmetric firms; market access; R&D investment;

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  1. Ignatius J. Horstmann & James R. Markusen, 1990. "Endogenous Market Structures in International Trade," NBER Working Papers 3283, National Bureau of Economic Research, Inc.
  2. Leahy, Dermot & Neary, J Peter, 1997. "Public Policy towards R&D in Oligopolistic Industries," American Economic Review, American Economic Association, vol. 87(4), pages 642-62, September.
  3. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
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  8. Kyle Bagwell, 1992. "Commitment and Observability in Games," Discussion Papers 1014, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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  16. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
  17. Waters, W G, II, 1970. "Transport Costs, Tariffs, and the Pattern of Industrial Protection," American Economic Review, American Economic Association, vol. 60(5), pages 1013-20, December.
  18. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
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  20. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-64, September.
  21. Spence, Michael, 1984. "Cost Reduction, Competition, and Industry Performance," Econometrica, Econometric Society, vol. 52(1), pages 101-21, January.
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