IDEAS home Printed from https://ideas.repec.org/a/ebl/ecbull/eb-10-00145.html
   My bibliography  Save this article

Rules of origin and international R&D rivalry

Author

Listed:
  • Kazuhiro Takauchi

    () (Department of Economics, Management and Information Science, Onomichi University)

Abstract

We study a three-country three-firm free trade area (FTA) trade model with rules of origin (ROO) under international R&D competition. The external tariff is chosen by the country importing final goods in the FTA. If the FTA chooses a higher content rate of ROO, the country importing final goods chooses a higher tariff in order to compensate for lower consumer surplus. We have three results. First, if the FTA raises the content rate, it raises the costs of exporters within the area, but if the R&D cost is sufficiently low, the exporters actually increase exports and their profits also increase. Second, if the firms within the FTA are less efficient than outsiders, the social welfare of countries importing final goods is affected by the content rate in a U-shaped fashion. A tightening of ROO may reduce the social welfare of importing countries since it may replace productive firms outside the FTA with less productive local firms. Third, if the productivity within an FTA is relatively high, the optimal content rate of ROO for the importing country within the FTA is 100%. In that case, the country importing final goods does not need to rely on imports from outside. Since an increase in the content rate of ROO increases external tariff, the most stringent ROO requirement is desirable for that country.

Suggested Citation

  • Kazuhiro Takauchi, 2011. "Rules of origin and international R&D rivalry," Economics Bulletin, AccessEcon, vol. 31(3), pages 2319-2332.
  • Handle: RePEc:ebl:ecbull:eb-10-00145
    as

    Download full text from publisher

    File URL: http://www.accessecon.com/Pubs/EB/2011/Volume31/EB-11-V31-I3-P209.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Leahy, Dermot & Neary, J Peter, 1996. "International R&D Rivalry and Industrial Strategy without Government Commitment," Review of International Economics, Wiley Blackwell, vol. 4(3), pages 322-338, October.
    2. Barros, Pedro P & Nilssen, Tore, 1999. " Industrial Policy and Firm Heterogeneity," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(4), pages 597-616, December.
    3. Lopez-de-Silanes, Florencio & Markusen, James R. & Rutherford, Thomas F., 1996. "Trade policy subtleties with multinational firms," European Economic Review, Elsevier, vol. 40(8), pages 1605-1627, November.
    4. Junichiro Ishida & Toshihiro Matsumura & Noriaki Matsushima, 2011. "Market Competition, R&D And Firm Profits In Asymmetric Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 59(3), pages 484-505, September.
    5. Rod Falvey & Geoff Reed, 2002. "Rules of Origin as Commercial Policy Instruments," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(2), pages 393-408, May.
    6. Leahy, Dermot & Neary, J Peter, 1999. "R&D Spillovers and the Case for Industrial Policy in an Open Economy," Oxford Economic Papers, Oxford University Press, vol. 51(1), pages 40-59, January.
    7. Lahiri, Sajal & Ono, Yoshiyasu, 1998. "Foreign Direct Investment, Local Content Requirement, and Profit Taxation," Economic Journal, Royal Economic Society, vol. 108(447), pages 444-457, March.
    8. Sajal Lahiri & Yoshiyasu Ono, 2003. "Export-Oriented Foreign Direct Investment and Local Content Requirement," Pacific Economic Review, Wiley Blackwell, vol. 8(1), pages 1-14, January.
    9. Lahiri, Sajal & Ono, Yoshiyasu, 1988. "Helping Minor Firms Reduces Welfare," Economic Journal, Royal Economic Society, vol. 98(393), pages 1199-1202, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Naoto Jinji & Yoshihiro Mizoguchi, 2016. "Optimal Rules of Origin with Asymmetric Compliance Costs under International Duopoly," Journal of Industry, Competition and Trade, Springer, vol. 16(1), pages 1-24, March.
    2. Sung Hee Lee & Kun Soo Park & Yong Won Seo, 2016. "Multinational Firm’s Production Decisions under Overlapping Free Trade Agreements: Rule of Origin Requirements and Environmental Regulation," Sustainability, MDPI, Open Access Journal, vol. 9(1), pages 1-16, December.
    3. Takauchi, Kazuhiro, 2015. "Endogenous transport price and international R&D rivalry," Economic Modelling, Elsevier, vol. 46(C), pages 36-43.
    4. Jinji, Naoto & Mizoguchi, Yoshihiro, 2016. "Rules of origin and technology spillovers from foreign direct investment under international duopoly," Japan and the World Economy, Elsevier, vol. 40(C), pages 47-60.

    More about this item

    Keywords

    Rules of origin (ROO); Free trade area (FTA); Research and Development (R&D) rivalry;

    JEL classification:

    • F1 - International Economics - - Trade

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ebl:ecbull:eb-10-00145. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (John P. Conley). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.