Strategic Technology Investments in Open Economies
AbstractWe study a general equilibrium model of international trade with heterogeneous fi rms, where countries can strategically invest in technology. The countries’ motive is to improve fi rms’ productivity, leading to a competitive advantage in international trade. We are interested in how trade liberalization aff ects this governmental incentive to invest in technology. In the closed economy countries invest if consumers have a suffi ciently high preference for varieties. In the open economy we analyze the Nash-equilibrium policy and the cooperative policy. If there are no cross-country investment spillovers, countries strategically compete in their investment levels and increase their investments with higher trade openness. From a social perspective we have an overinvestment problem. If there are cross-country investment spillovers, we diff erentiate between weak and strong spillovers. In both cases the cooperative solution predicts a positive relationship between investments and trade openness. If there are weak (strong) spillovers, we fi nd a positive (hump-shaped) relationship between technology investments and trade openness in the Nash-equilibrium. From a social perspective we obtain an over (under)-investment problem if spillovers are weak (strong).
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Bibliographic InfoPaper provided by Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen in its series Ruhr Economic Papers with number 0199.
Length: 36 pages
Date of creation: Aug 2010
Date of revision:
Find related papers by JEL classification:
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-09-25 (All new papers)
- NEP-INT-2010-09-25 (International Trade)
- NEP-IPR-2010-09-25 (Intellectual Property Rights)
- NEP-OPM-2010-09-25 (Open Economy Macroeconomic)
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