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Trade Policy in the Presence of Technology Licensing


  • Arghya Ghosh
  • Souresh Saha


We consider strategic trade policy when a high-cost and a low-cost firm belonging to two different countries compete in quantities in a third country, and technology is transferable via licensing. We characterize the effects of subsidies on (i) licensing payments-a new source of rents, (ii) the decision to license, and (iii) the subsidy bill difference (compared to when licensing is infeasible). We find that, in the presence of licensing, optimal strategic trade policy has several interesting features. For example, even under Cournot competition, optimal policy can be an export tax instead of an export subsidy. Also, unlike results in strategic trade policy with asymmetric costs, we find that optimal export subsidies are not necessarily positively related to the cost-competitiveness of firms. In other words, governments need not necessarily favor "winners" when licensing is possible. Furthermore, there exist parameterizations such that a government, if it can, might ban licensing. Copyright © 2008 The Authors; Journal compilation © 2008 Blackwell Publishing Ltd.

Suggested Citation

  • Arghya Ghosh & Souresh Saha, 2008. "Trade Policy in the Presence of Technology Licensing," Review of International Economics, Wiley Blackwell, vol. 16(1), pages 45-68, February.
  • Handle: RePEc:bla:reviec:v:16:y:2008:i:1:p:45-68

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    References listed on IDEAS

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    Cited by:

    1. Ghosh, Arghya & Saha, Souresh, 2015. "Price competition, technology licensing and strategic trade policy," Economic Modelling, Elsevier, vol. 46(C), pages 91-99.
    2. Neelanjan Sen, 2015. "Technology transfer and its effect on innovation," Economics Bulletin, AccessEcon, vol. 35(4), pages 2523-2534.
    3. Poddar, Sougata & Bouguezzi, Fehmi, 2011. "Patent licensing in spatial competition: Does pre-innovation cost asymmetry matter?," MPRA Paper 32764, University Library of Munich, Germany.
    4. Aoki, Shuhei, 2011. "A Model of Technology Transfer in Japan's Rapid Economic Growth Period," IIR Working Paper 11-05, Institute of Innovation Research, Hitotsubashi University.
    5. ISHIKAWA Jota & OKUBO Toshihiro, 2013. "Trade and Industrial Policy Subtleties with International Licensing," Discussion papers 13050, Research Institute of Economy, Trade and Industry (RIETI).
    6. Munirul H. Nabin & Xuan Nguyen & Pasquale M. Sgro, 2013. "Technology Transfer, Quality Standards, and North–South Trade," Review of International Economics, Wiley Blackwell, vol. 21(4), pages 783-796, September.
    7. Kabiraj, Abhishek & Kabiraj, Tarun, 2017. "Tariff induced licensing contracts, consumers’ surplus and welfare," Economic Modelling, Elsevier, vol. 60(C), pages 439-447.

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