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Explaining Japan's Innovation and Trade: A Model of Quality Competition and Dynamic Comparative Advantage

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  • Gene M. Grossman

    (Professor, Princeton University, Princeton, New Jersey, U.S.A.)

Abstract

In this paper, I develop a model of dynamic comparative advantage based on endogenous innovation. Firms devote resources to R&D in order to improve the quality of high-technology products. Research successes generate profit opportunities in the world market. The model predicts that a country such as Japan, with an abundance of skilled labor and scarcity of natural resources, will specialize relatively in industrial innovation and in the production of high-technology goods. I use the model to explore the effects of R&D subsidies, production subsidies and trade policies on the long-run rates of innovation in the two trade partner countries and on the long-run pattern of trade.

Suggested Citation

  • Gene M. Grossman, 1990. "Explaining Japan's Innovation and Trade: A Model of Quality Competition and Dynamic Comparative Advantage," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 8(2), pages 75-100, September.
  • Handle: RePEc:ime:imemes:v:8:y:1990:i:2:p:75-100
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    Cited by:

    1. Aggarwal, Aradhna, 2010. "Economic impacts of SEZs: Theoretical approaches and analysis of newly notified SEZs in India," MPRA Paper 20902, University Library of Munich, Germany.
    2. Stolpe, Michael, 1995. "Technology and the dynamics of specialization in open economies," Open Access Publications from Kiel Institute for the World Economy 738, Kiel Institute for the World Economy (IfW).
    3. Stadler, Manfred, 2015. "Innovation, industrial dynamics and economic growth," University of Tuebingen Working Papers in Economics and Finance 84, University of Tuebingen, Faculty of Economics and Social Sciences.
    4. Lutz, Stefan H., 2002. "Trade Policy: 'Political' vs. 'Economic' Factors," ZEW Discussion Papers 02-75, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    5. Siebert, Horst, 1991. "A Schumpeterian model of growth in the world economy: some notes on a new paradigm in international economics," Open Access Publications from Kiel Institute for the World Economy 1498, Kiel Institute for the World Economy (IfW).
    6. Stolpe, Michael, 1993. "Industriepolitik aus Sicht der neuen Wachstumstheorie," Open Access Publications from Kiel Institute for the World Economy 1568, Kiel Institute for the World Economy (IfW).
    7. Klodt, Henning, 1992. "Theorie der strategischen Handelspolitik und neue Wachstumstheorie als Grundlage für eine Industrie- und Technologiepolitik?," Kiel Working Papers 533, Kiel Institute for the World Economy (IfW).

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