R&D Spillovers and the Case for Industrial Policy in an Open Economy
In this paper, the authors consider the case for subsidies toward firms which generate R&D spillovers in open economies. They show that, in the presence of strategic behavior by firms, many expected results are overturned. Local R&D spillovers to other domestic firms may justify an R&D tax rather than a subsidy; R&D cooperation by local firms overinternalizes the externality and also justifies an R&D tax; and international spillovers that benefit foreign firms may justify a subsidy, even though the government cares only about the profits of home firms. Copyright 1999 by Royal Economic Society.
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Volume (Year): 51 (1999)
Issue (Month): 1 (January)
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