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A Public Firm's R&D Policy and Trade Liberalization

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  • Tomaru, Yoshihiro

Abstract

This paper studies a public firm's incentive to raise its productive efficiency by undertaking cost-reducing R&D investment when it competes against a foreign private firm. Our focus is to ravel out how a decrease in an importing tariff levied on foreign goods affects this investment level inter alia. We show that when the government imposes non-negative tariffs, a tariff reduction lowers the R&D investment, irrespective of whether the public firm has downward or upward sloping reaction curve. Namely, R&D investment conducted by the public firm is substitutable to an importing tariff. Furthermore, under a linear demand assumption, it is concluded that a tariff reduction necessarily enhances world welfare if both R&D investment and tariffs are set to domestic welfare-maximizing levels. More strict assumptions on marginal cost and R&D cost function make complete trade liberalization desirable from the viewpoint of world welfare.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 28173.

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Date of creation: Aug 2010
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Handle: RePEc:pra:mprapa:28173

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Keywords: Mixed Oligopoly; R&D; Trade Liberalization;

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