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A Note on R&D and Price Elasticity of Demand

  • Dorothea Lucke

    (DIW Berlin)

  • Philipp J.H. Schröder

    (DIW Berlin)

  • Dieter Schumacher

    ()

    (DIW Berlin)

This note explores the relationship between the price elasticity of demand and the R&D intensity of the product. We introduce the concept of R&D intensity into a standard Dixit-Stiglitz/Krugmann-type setting. R&D activity is treated as a ficed cost of production. Within this framework, sectors with a higher R&D intensity show a lower price elasticity of demand. This proposition is confirmed by an empirical investigation of export demand for manufactured goods from major industrialised countries. Consequently, real exchange rate changes have an impact on the commodity structure of exports.

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Article provided by Justus-Liebig University Giessen, Department of Statistics and Economics in its journal Journal of Economics and Statistics.

Volume (Year): 225 (2005)
Issue (Month): 6 (November)
Pages: 688-698

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Handle: RePEc:jns:jbstat:v:225:y:2005:i:6:p:688-698
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  1. Jan Jørgensen & Philipp Schröder, 2005. "Welfare-ranking ad valorem and specific tariffs under monopolistic competition," Canadian Journal of Economics, Canadian Economics Association, vol. 38(1), pages 228-241, February.
  2. Schröder, Philipp J.H. & Jørgensen, Jan G., 2001. "Reductions in Real versus Tariff Barriers: The Effects on Industry Concentration," MPRA Paper 124, University Library of Munich, Germany.
  3. Rian Beise-Zee & Christian Rammer, 2006. "Local User-Producer Interaction in Innovation and Export Performance of Firms," Small Business Economics, Springer, vol. 27(2), pages 207-222, October.
  4. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  5. Abdelhak S. Senhadji & Claudio E. Montenegro, 1999. "Time Series Analysis of Export Demand Equations: A Cross-Country Analysis," IMF Staff Papers, Palgrave Macmillan, vol. 46(3), pages 2.
  6. Benassy, Jean-Pascal, 1996. "Taste for variety and optimum production patterns in monopolistic competition," Economics Letters, Elsevier, vol. 52(1), pages 41-47, July.
  7. Houthakker, Hendrik S & Magee, Stephen P, 1969. "Income and Price Elasticities in World Trade," The Review of Economics and Statistics, MIT Press, vol. 51(2), pages 111-25, May.
  8. Goldstein, Morris & Khan, Mohsin S., 1985. "Income and price effects in foreign trade," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 20, pages 1041-1105 Elsevier.
  9. Dorothea Lucke & Philipp J. H. Schröder & Dieter Schumacher, 2004. "R&D and Price Elasticity of Demand," Discussion Papers of DIW Berlin 430, DIW Berlin, German Institute for Economic Research.
  10. Philipp J.H. Schröder, 2004. "Real Versus Tariff Liberalization: A Welfare Comparison Under Monopolistic Competition," Open Economies Review, Springer, vol. 15(4), pages 403-418, October.
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