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R&D Subsidies and Foreign Direct Investment

Listed author(s):
  • Manuel A. Gómez

    ()

    (Universidade da Coruña, Campus de A Coruña)

  • Tiago Neves Sequeira

    ()

    (Universidade da Beira Interior, Estrada do Sineiro)

Abstract We devise a model in which domestic firms do applied R&D, which can be subsidized by the government, and foreign firms with superior technology can enter in the domestic market. Foreign Direct Investment can act as a substitute of subsidies to improve domestic R&D, the share of domestic leading firms and consumption. Relatively closed economies may benefit from R&D subsidization while relatively open economies may not. For relatively low growth of the technological frontier, it is optimal to subsidize R&D and close the economy to foreign investment but the opposite happens for relatively high growth. Numerical simulations show the economy dynamics after policy experiments.

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File URL: http://link.springer.com/10.1007/s11079-016-9390-3
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Article provided by Springer in its journal Open Economies Review.

Volume (Year): 27 (2016)
Issue (Month): 4 (September)
Pages: 769-793

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Handle: RePEc:kap:openec:v:27:y:2016:i:4:d:10.1007_s11079-016-9390-3
DOI: 10.1007/s11079-016-9390-3
Contact details of provider: Web page: http://www.springer.com

Order Information: Web: http://www.springer.com/economics/international+economics/journal/11079/PS2

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