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Cost Effectiveness of R&D and the Robustness of Strategic Trade Policy

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Author Info
Praveen Kujal (Universidad Carlos III de Madrid)
Juan Ruiz (Universidad Carlos III de Madrid)

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Abstract

This paper analyzes the incentives for governments to impose export subsidies when firms invest in a cost saving technology before market competition. Governments first impose an export subsidy or a tax. After observing export policy, firms invest in cost reducing R&D and subsequently compete in the market. Governments subsidize exports under Cournot competition. Under Bertrand competition, export subsidies are positive whenever R&D is sufficiently cost-effective at reducing marginal costs,and negative otherwise.The trade policy reversal found in models without endogenous sunk costs disappears if R&D is sufficiently cost-effective. Output subsidies are more robust than implied by the recent literature.

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File URL: http://129.3.20.41/eps/it/papers/0302/0302001.pdf
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Publisher Info
Paper provided by EconWPA in its series International Trade with number 0302001.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 36 pages
Date of creation: 04 Feb 2003
Date of revision: 04 Feb 2003
Handle: RePEc:wpa:wuwpit:0302001

Note: Type of Document - pdf file; prepared on Scientific Workplace; to print on Any; pages: 36 ; figures: included in text
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Web page: http://129.3.20.41

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Related research
Keywords: Product Differentiation; Strategic Trade Policy; Policy Reversals; R&D.;

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Find related papers by JEL classification:
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Praveen Kujal & Juan Ruiz, 2003. "Cost effectiveness of R&D and the robustness of Strategic Trade Policy," Economics Working Papers we030401, Universidad Carlos III, Departamento de Economía. [Downloadable!]
    Other versions:
  2. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February. [Downloadable!] (restricted)
    Other versions:
  3. Bagwell, Kyle & Staiger, Robert W., 1994. "The sensitivity of strategic and corrective R&D policy in oligopolistic industries," Journal of International Economics, Elsevier, vol. 36(1-2), pages 133-150, February. [Downloadable!] (restricted)
    Other versions:
  4. Brander, James A., 1995. "Strategic trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 27, pages 1395-1455 Elsevier. [Downloadable!] (restricted)
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  5. Neary, J Peter & Leahy, Dermot, 2000. "Strategic Trade and Industrial Policy towards Dynamic Oligopolies," Economic Journal, Royal Economic Society, vol. 110(463), pages 484-508, April. [Downloadable!] (restricted)
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  6. Neary, J. Peter, 1994. "Cost asymmetries in international subsidy games: Should governments help winners or losers?," Journal of International Economics, Elsevier, vol. 37(3-4), pages 197-218, November. [Downloadable!] (restricted)
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  7. Eaton, Jonathan & Grossman, Gene M, 1986. "Optimal Trade and Industrial Policy under Oligopoly," The Quarterly Journal of Economics, MIT Press, vol. 101(2), pages 383-406, May. [Downloadable!] (restricted)
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  8. Leahy, Dermot & Neary, J Peter, 2001. "Robust Rules for Industrial Policy in Open Economies," CEPR Discussion Papers 2731, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  9. Dermot Leahy, J. Peter Neary, 2001. "Robust rules for industrial policy open economies," Journal of International Trade & Economic Development, Taylor and Francis Journals, vol. 10(4), pages 393-409, December. [Downloadable!] (restricted)
  10. Maggi, Giovanni, 1996. "Strategic Trade Policies with Endogenous Mode of Competition," American Economic Review, American Economic Association, vol. 86(1), pages 237-58, March. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Praveen Kujal & Juan Ruiz, 2003. "Policy Synchronization and Staggering in a Dynamic Model of Strategic Trade," International Trade 0302003, EconWPA. [Downloadable!]
  2. Juan Ruiz, 2004. "Cost effectiveness of R&D and the robustness of Strategic Trade Policy," Economics Discussion Papers 579, University of Essex, Department of Economics. [Downloadable!]
    Other versions:
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