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Protectionism under R&D policy: innovation rate and welfare


  • Felipa de Mello-Sampayo
  • Sofia de Sousa-Vale
  • Francisco Camões
  • Orlando Gomes


Purpose - The purpose of this paper is to explain how eventual pressures from national lobbies may lead governments to shift from an optimal into a non-optimal innovation policy. Design/methodology/approach - A theoretical model is developed in order to examine and explain the growth and welfare effects of optimal and non-optimal innovation policies. The non-optimal policy corresponds to a subsidy for national innovators that is equivalent to an optimal policy of incentives (tax cuts) to foreign investors. Since we are assessing what can nationals do with the support that could be oriented to foreign firms, we are measuring what the economy loses for not supporting foreign firms. Findings - The authors find welfare loss when supporting national R&D instead of foreign R&D and conclude that the same support given to innovation can produce strikingly different outcomes depending on who receives the support. Practical implications - The analysis allows the impact of the inefficiency caused by policies that are not sound, from a strictly economic point of view, to be measured. Originality/value - The originality of the paper is related to the assessment of the implications and to the measurement of the effects of non-optimal R&D policies.

Suggested Citation

  • Felipa de Mello-Sampayo & Sofia de Sousa-Vale & Francisco Camões & Orlando Gomes, 2012. "Protectionism under R&D policy: innovation rate and welfare," Journal of Economic Studies, Emerald Group Publishing, vol. 39(1), pages 106-124, January.
  • Handle: RePEc:eme:jespps:v:39:y:2012:i:1:p:106-124

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    References listed on IDEAS

    1. Feenstra, Robert C., 1996. "Trade and uneven growth," Journal of Development Economics, Elsevier, vol. 49(1), pages 229-256, April.
    2. Balasubramanyam, V N & Salisu, M & Sapsford, David, 1996. "Foreign Direct Investment and Growth in EP and IS Countries," Economic Journal, Royal Economic Society, vol. 106(434), pages 92-105, January.
    3. Elberfeld Walter & Götz Georg & Stähler Frank, 2005. "Vertical Foreign Direct Investment, Welfare, and Employment," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-30, February.
    4. Nicholas Bull, 1993. "When all the optimal dynamic taxes are zero," Working Paper Series / Economic Activity Section 137, Board of Governors of the Federal Reserve System (U.S.).
    5. Felipa de Mello-Sampayo & Sofia de Sousa-Vale & Francisco Camões, 2007. "Accelerating Innovation: National R&D Subsidies versus Foreign R&D Tax Credits," Working Papers Series 1 ercwp0108, ISCTE-IUL, Business Research Unit (BRU-IUL).
    6. Balcao Reis, Ana, 2001. "On the welfare effects of foreign investment," Journal of International Economics, Elsevier, vol. 54(2), pages 411-427, August.
    7. Reis, Ana Balcao, 2006. "Welfare, taxes and foreign investment," Journal of Economic Dynamics and Control, Elsevier, vol. 30(6), pages 1045-1061, June.
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    More about this item


    Portugal; Poland; Government policy; Fiscal policy; Protectionism; International investments; Subsidies; Taxes; Innovation; Research and development; Endogenous growth; Foreign direct investment;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General


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