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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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File URL: http://www.shef.ac.uk/economics/research/serps/articles/2013_017.html
File Function: First version, 2013
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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. Catia Montagna, 1998. "Efficiency Gaps, Love of Variety and International Trade," Dundee Discussion Papers in Economics 090, Economic Studies, University of Dundee.
  2. 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.
  3. Ledezma, Ivan & Bas, Maria, 2010. "Trade Integration and Within-Plant Productivity Evolution in Chile," Economics Papers from University Paris Dauphine 123456789/6910, Paris Dauphine University.
  4. 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.
  5. Antonio Navas-Ruiz & Davide Sala, 2007. "Technology Adoption and the Selection Effect of Trade," Economics Working Papers ECO2007/58, European University Institute.
  6. Bartelsman, Eric & Haltiwanger, John & Scarpetta1, Stefano, 2004. "Microeconomic evidence of creative destruction in industrial and developing countries," Policy Research Working Paper Series 3464, The World Bank.
  7. Osamu Onodera, 2008. "Trade and Innovation Project: A Synthesis Paper," OECD Trade Policy Papers 72, OECD Publishing.
  8. Diego Comin & Bart Hobijn, 2007. "Implementing Technology," NBER Working Papers 12886, National Bureau of Economic Research, Inc.
  9. Peter Gustafsson & Paul Segerstrom, 2010. "Trade Liberalization and Productivity Growth," Review of International Economics, Wiley Blackwell, vol. 18(2), pages 207-228, 05.
  10. Görg, Holger & Henry, Michael & Strobl, Eric, 2007. "Grant Support and Exporting Activity," CEPR Discussion Papers 6054, C.E.P.R. Discussion Papers.
  11. Alla Lileeva & Daniel Trefler, 2010. "Improved Access to Foreign Markets Raises Plant-Level Productivity... for Some Plants," The Quarterly Journal of Economics, MIT Press, vol. 125(3), pages 1051-1099, August.
  12. Eric J. Bartelsman & John Haltiwanger & Stefano Scarpetta, 2004. "Microeconomic Evidence of Creative Destruction in Industrial and Developing Countries," Tinbergen Institute Discussion Papers 04-114/3, Tinbergen Institute.
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