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Foreign Technology, Spillovers and R&D Policy

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  • Maria E. Muniagurria

    (U C,Santa Cruz)

  • Nirvikar Singh

    (U C, Santa Cruz)

Abstract

We study the nature of appropriate domestic R\&D policy in an imperfectly competitive world, where both the R\&D rivalry among firms and the presence of technological spillovers from a superior foreign technology play a crucial role.There are two firms (a foreign and a domestic firm) that are located in the domestic country, produce a commodity that is sold overseas and compete both in an output and an R\&D stage. We use the basic Spencer and Brander (1983) model with three modifications. First, we introduce R\&D dynamics by considering both an initial R\&D investment and a subsequent improvement. Firms invest in R\&D in period one and can make further improvements in period two. Second, we introduce an asymmetry between the two firms: the foreign firm is more advanced -so it has to invest fewer resources to achieve a given technological level. Third, we consider technological spillovers between firms. We find that the appropriate R&D policy balances the strategic incentive to induce a reduction in foreign initial R&D with the spillover incentive to induce the foreign firm to invest more. If initial foreign R &D increases the present value of domestic profits (i.e., the spillover effect dominates), either a tax to first period domestic R&D or a subsidy to domestic imitation is appropriate. If instead improvements in first period foreign technology have a negative effect on the present value of domestic profits (i.e., the strategic effect dominates) a subsidy to first period domestic R\&D is appropriate.In this case, the nature of the optimal policy on imitation will depend on the relative importance of first and second period effects.

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Bibliographic Info

Paper provided by EconWPA in its series Development and Comp Systems with number 9411001.

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Date of creation: 16 Nov 1994
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Handle: RePEc:wpa:wuwpdc:9411001

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  1. Barbara J. Spencer & James A. Brander, 1982. "International R&D Rivalry and Industrial Strategy," Working Papers 518, Queen's University, Department of Economics.
  2. Bhaskar Dutta & Kotaro Suzumura, 1993. "On the Sustainability of Collaborative R&D through Private Incentives," Discussion Paper Series a276, Institute of Economic Research, Hitotsubashi University.
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Cited by:
  1. Paul O'Sullivan, 2013. "Research Joint Ventures: A Barrier To Entry?," Economics, Finance and Accounting Department Working Paper Series n246-13.pdf, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  2. Neary, J Peter & O'Sullivan, Paul, 1999. " Beat 'Em or Join 'Em? Export Subsidies versus International Research Joint Ventures in Oligopolistic Markets," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(4), pages 577-96, December.
  3. Paul O'Sullivan, 2013. "Less Is More? Research Joint Ventures And Entry Deterrence," Economics, Finance and Accounting Department Working Paper Series n245-13.pdf, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  4. Jinji, Naoto & Toshimitsu, Tsuyoshi, 2013. "Strategic R&D policy in a quality-differentiated industry with three exporting countries," Japan and the World Economy, Elsevier, vol. 28(C), pages 132-142.
  5. Yuko Kinoshita, 2000. "R&D and technology spillovers via FDI: Innovation and absorptive capacity," CERGE-EI Working Papers wp163, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  6. María José Gil Moltó & Nikolaos Georgantzís & Vicente Orts, 2004. "Cooperative R&D with Endogenous Technology Differentiation," Industrial Organization 0401009, EconWPA.
  7. Mathew, Anuj Joshua & Mukherjee, Arijit, 2014. "Intellectual property rights, southern innovation and foreign direct investment," International Review of Economics & Finance, Elsevier, vol. 31(C), pages 128-137.
  8. Kinoshita, Yuko, 2001. "R&D and Technology Spillovers through FDI: Innovation and Absorptive Capacity," CEPR Discussion Papers 2775, C.E.P.R. Discussion Papers.
  9. M. Àngels Oliva & Luis Rivera-Bátiz, 1997. "Multinationals, technology networks and international takeovers," Economics Working Papers 231, Department of Economics and Business, Universitat Pompeu Fabra.
  10. Yuko Kinoshita, 2000. "R&D and Technology Spillovers via FDI: Innovation and Absorptive Capacity," William Davidson Institute Working Papers Series 349, William Davidson Institute at the University of Michigan.
  11. Naoto Jinji & Tsuyoshi Toshimitsu, 2010. "Strategic R&D Policy in a Quality-Differentiated Industry with More than Two Exporting Countries," Discussion papers e-09-001, Graduate School of Economics Project Center, Kyoto University.

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