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A Public Firm's R&D Policy and Trade Liberalization

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  • Tomaru, Yoshihiro

Abstract

This paper studies a public firm's incentive to raise its productive efficiency by undertaking cost-reducing R&D investment when it competes against a foreign private firm. Our focus is to ravel out how a decrease in an importing tariff levied on foreign goods affects this investment level inter alia. We show that when the government imposes non-negative tariffs, a tariff reduction lowers the R&D investment, irrespective of whether the public firm has downward or upward sloping reaction curve. Namely, R&D investment conducted by the public firm is substitutable to an importing tariff. Furthermore, under a linear demand assumption, it is concluded that a tariff reduction necessarily enhances world welfare if both R&D investment and tariffs are set to domestic welfare-maximizing levels. More strict assumptions on marginal cost and R&D cost function make complete trade liberalization desirable from the viewpoint of world welfare.

Suggested Citation

  • Tomaru, Yoshihiro, 2010. "A Public Firm's R&D Policy and Trade Liberalization," MPRA Paper 28173, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:28173
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    References listed on IDEAS

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    1. Bos, Dieter, 1991. "Privatization: A Theoretical Treatment," OUP Catalogue, Oxford University Press, number 9780198283690.
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    More about this item

    Keywords

    Mixed Oligopoly; R&D; Trade Liberalization;
    All these keywords.

    JEL classification:

    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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