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

Author

Listed:
  • Leahy, D.
  • Neary, J. P.

Abstract

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.

Suggested Citation

  • Leahy, D. & Neary, J. P., 1997. "R&D spillovers and the case for industrial policy in an open economy," LSE Research Online Documents on Economics 20342, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:20342
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    JEL classification:

    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General

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