Strategic Investment and the Gains from Trade
This paper examines how trade liberalisation affects innovation, profits and welfare when firms are engaging in strategic R&D investment. We show that there are multiple equilibria including an autarky equilibrium for a range of high but non-prohibitive trade costs. At lower trade costs, only the trading equilibrium survives. Welfare is U-shaped in the trade costs, so a small fall in trade costs can be welfare reducing. However we find a threshold level of the effectiveness of investment above which trade is always welfare superior to autarky
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Web page: http://www.maynoothuniversity.ie/economics-finance-and-accounting
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- Long, Ngo Van & Raff, Horst & Stähler, Frank, 2011.
"Innovation and trade with heterogeneous firms,"
Journal of International Economics,
Elsevier, vol. 84(2), pages 149-159, July.
- Ngo Van Long & Horst Raff & Frank Stähler, 2008. "Innovation and Trade with Heterogeneous Firms," Kiel Working Papers 1430, Kiel Institute for the World Economy.
- Ngo Van Long & Horst Raff & Frank Stähler, 2009. "Innovation and Trade with Heterogeneous Firms," CESifo Working Paper Series 2796, CESifo Group Munich.
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