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Innovation and Trade Policy Coordination: the Role of Firm Heterogeneity

  • Antonio Navas


    (Department of Economics, The University of Sheffield)

  • Davide Sala


    (Department of Business and Economics, University of Southern Denmark)

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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Paper provided by The University of Sheffield, Department of Economics in its series Working Papers with number 2013017.

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Length: 38 pages
Date of creation: 2013
Date of revision:
Handle: RePEc:shf:wpaper:2013017
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  1. Alla Lileeva & Daniel Trefler, 2007. "Improved Access to Foreign Markets Raises Plant-Level Productivity ... for Some Plants," NBER Working Papers 13297, National Bureau of Economic Research, Inc.
  2. Holger Görg & Michael Henry & Eric Strobl, 2008. "Grant Support and Exporting Activity," The Review of Economics and Statistics, MIT Press, vol. 90(1), pages 168-174, February.
  3. Maria Bas & Ivan Ledezma, 2008. "Trade integration and within-plant productivity evolution in Chile," PSE Working Papers halshs-00588309, HAL.
  4. Antonio Navas-Ruiz & Davide Sala, 2007. "Technology adoption and the selection effect of trade," Economics Working Papers we076737, Universidad Carlos III, Departamento de Economía.
  5. Osamu Onodera, 2008. "Trade and Innovation Project: A Synthesis Paper," OECD Trade Policy Papers 72, OECD Publishing.
  6. Gu, Wulong & Baldwin, John R., 2004. "Innovation, Survival and Performance of Canadian Manufacturing Plants," Economic Analysis (EA) Research Paper Series 2004022e, Statistics Canada, Analytical Studies Branch.
  7. Gregory Corcos & Massimo Del Gatto & Giordano Mion & Gianmarco I.P. Ottaviano, 2012. "Productivity and Firm Selection: Quantifying the ‘New’ Gains from Trade," Economic Journal, Royal Economic Society, vol. 122(561), pages 754-798, 06.
  8. Gustafsson, Peter & Segerstrom, Paul, 2006. "Trade Liberalization and Productivity Growth," CEPR Discussion Papers 5894, C.E.P.R. Discussion Papers.
  9. Bartelsman, Eric & Haltiwanger, John C. & Scarpetta, Stefano, 2004. "Microeconomic Evidence of Creative Destruction in Industrial and Developing Countries," IZA Discussion Papers 1374, Institute for the Study of Labor (IZA).
  10. Montagna, Catia, 2001. "Efficiency Gaps, Love of Variety and International Trade," Economica, London School of Economics and Political Science, vol. 68(269), pages 27-44, February.
  11. Diego Comin & Bart Hobijn, 2007. "Implementing Technology," NBER Working Papers 12886, National Bureau of Economic Research, Inc.
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