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R&D spillovers and the case for industrial policy in an open economy

  • D. Leahy
  • J. P. Neary

In this paper we consider the case for subsidies towards firms which generate R&D spillovers in open economies. We show that many expected results are overturned in the presence of strategic behaviour by firms. Local R&D spillovers to other domestic firms may justify an R&D tax rather than a subsidy; R&D cooperation by local firms over-internalises the externality and also justifies an R&D tax; and international spillovers which benefit foreign firms may justify a subsidy, even though the government cares only about the profits of home firms.

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Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 20342.

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Length: 36 pages
Date of creation: Apr 1997
Date of revision:
Handle: RePEc:ehl:lserod:20342
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