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Innovation and trade policy coordination: the role of firm heterogeneity

  • Navas, Antonio

    ()

    (Department of Economics)

  • Sala, Davide

    ()

    (Department of Business and Economics)

Recent studies have concluded that R&D grants can induce firms to export and that exporting and innovating can be complementary activities at the firm level. Yet the trade literature has paid little attention to the scope of innovation policy as a stimulus to both trade and innovation. To investigate this question we rely on a general work-horse model of trade and firm heterogeneity with firm investments in R&D activities. The multiplicity of equilibria together with the interplay of innovation and trade policies uncover novel results. In particular, we show that the effects of either policy depend on the degree of protectionism in a country. Therefore, countries can respond differently to the same policy, and similarly to different policies. In such a context, different governments may face different degrees of freedom regarding how to achieve a given target. This finding leads us to discuss the issue of policy coordination.

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File URL: http://static.sdu.dk/mediafiles//7/8/9/%7B789485EC-136B-49CE-A436-5ECA73F9BF99%7Ddpbe18_2013_.pdf
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Paper provided by Department of Business and Economics, University of Southern Denmark in its series Discussion Papers of Business and Economics with number 18/2013.

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Length: 37 pages
Date of creation: 04 Nov 2013
Date of revision:
Handle: RePEc:hhs:sdueko:2013_018
Contact details of provider: Postal:
Department of Business and Economics, University of Southern Denmark, Campusvej 55, DK-5230 Odense M, Denmark

Phone: 65 50 32 33
Fax: 65 50 32 37
Web page: http://www.sdu.dk/ivoe
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  1. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  2. Andrew Atkeson & Ariel Burstein, 2007. "Innovation, firm dynamics, and international trade," NBER Working Papers 13326, National Bureau of Economic Research, Inc.
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  16. Peretto, Pietro F., 1999. "Cost reduction, entry, and the interdependence of market structure and economic growth," Journal of Monetary Economics, Elsevier, vol. 43(1), pages 173-195, February.
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