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Quality-Improving R&D, Trade Barriers, and Foreign Direct Investment

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  • Jeffrey Heinrich


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    This investigation pits Cournot oligopolists against each other in a model of quality and R&D choice. A firm gains a strategic advantage over its rival when it is able to sell in more countries due to the jointness of quality improvements across production locations. Trade barriers that restrict access to a market put the restricted firm at a disadvantage, the degree of disadvantage being stronger under a quota than under a tariff. Given that FDI (foreign direct investment) depends on this disadvantage, quotas present a stronger incentive to undertake FDI than a tariff. Also, in this model it is never possible for a quota to lead to quality upgrading of imports due to the associated disadvantage of the importing firm in quality-improving R&D.

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    Paper provided by University of Hawaii at Manoa, Department of Economics in its series Working Papers with number 199712.

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    Length: 33 pages
    Date of creation: 1997
    Handle: RePEc:hai:wpaper:199712
    Note: Rough draft--please do not cite without permission from the author.
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