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Foreign Technology, Spillovers and R&D Policy

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  • Maria E. Muniagurria

    (U C,Santa Cruz)

  • Nirvikar Singh

    (U C, Santa Cruz)

Abstract

We study the nature of appropriate domestic R\&D policy in an imperfectly competitive world, where both the R\&D rivalry among firms and the presence of technological spillovers from a superior foreign technology play a crucial role.There are two firms (a foreign and a domestic firm) that are located in the domestic country, produce a commodity that is sold overseas and compete both in an output and an R\&D stage. We use the basic Spencer and Brander (1983) model with three modifications. First, we introduce R\&D dynamics by considering both an initial R\&D investment and a subsequent improvement. Firms invest in R\&D in period one and can make further improvements in period two. Second, we introduce an asymmetry between the two firms: the foreign firm is more advanced -so it has to invest fewer resources to achieve a given technological level. Third, we consider technological spillovers between firms. We find that the appropriate R&D policy balances the strategic incentive to induce a reduction in foreign initial R&D with the spillover incentive to induce the foreign firm to invest more. If initial foreign R &D increases the present value of domestic profits (i.e., the spillover effect dominates), either a tax to first period domestic R&D or a subsidy to domestic imitation is appropriate. If instead improvements in first period foreign technology have a negative effect on the present value of domestic profits (i.e., the strategic effect dominates) a subsidy to first period domestic R\&D is appropriate.In this case, the nature of the optimal policy on imitation will depend on the relative importance of first and second period effects.

Suggested Citation

  • Maria E. Muniagurria & Nirvikar Singh, 1994. "Foreign Technology, Spillovers and R&D Policy," Development and Comp Systems 9411001, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpdc:9411001
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    References listed on IDEAS

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    1. Wang, Jian-Ye, 1990. "Growth, technology transfer, and the long-run theory of international capital movements," Journal of International Economics, Elsevier, vol. 29(3-4), pages 255-271, November.
    2. Barbara J. Spencer & James A. Brander, 1983. "International R & D Rivalry and Industrial Strategy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 50(4), pages 707-722.
    3. Bhaskar Dutta & Kotaro Suzumura, 1993. "On the Sustainability of Collaborative R&D through Private Incentives," Discussion Paper Series a276, Institute of Economic Research, Hitotsubashi University.
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    Cited by:

    1. Paul O'Sullivan, 2014. "DEMAND UNCERTAINTY, R&D LEADERSHIP AND RESEARCH JOINT VENTUREs," Economics Department Working Paper Series n252-14.pdf, Department of Economics, National University of Ireland - Maynooth.
    2. Kinoshita, Yuko, 2001. "R&D and Technology Spillovers through FDI: Innovation and Absorptive Capacity," CEPR Discussion Papers 2775, C.E.P.R. Discussion Papers.
    3. Paul O'Sullivan, 2013. "Research Joint Ventures: A Barrier To Entry?," Economics Department Working Paper Series n246-13.pdf, Department of Economics, National University of Ireland - Maynooth.
    4. Paul O'Sullivan, 2014. "R&D Leadership And Research Joint Ventures," Economics Department Working Paper Series n251-14.pdf, Department of Economics, National University of Ireland - Maynooth.
    5. Moonsung Kang, 2006. "Trade policy mix: IPR protection and R&D subsidies," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 39(3), pages 744-757, August.
    6. J. Peter Neary & Paul O'Sullivan, 1999. "Beat 'em or Join 'em? Export Subsidies versus International Research Joint Ventures in Oligopolistic Markets," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(4), pages 577-596, December.
    7. Takauchi, Kazuhiro, 2012. "International R&D Rivalry with a Shipping Firm," MPRA Paper 36843, University Library of Munich, Germany.
    8. Mathew, Anuj Joshua & Mukherjee, Arijit, 2014. "Intellectual property rights, southern innovation and foreign direct investment," International Review of Economics & Finance, Elsevier, vol. 31(C), pages 128-137.
    9. Zhou, Haiwen, 2007. "International R&D Tournaments and Industrial Policy," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 22, pages 320-338.
    10. Naoto Jinji & Tsuyoshi Toshimitsu, 2010. "Strategic R&D Policy in a Quality-Differentiated Industry with More than Two Exporting Countries," Discussion papers e-09-001, Graduate School of Economics Project Center, Kyoto University.
    11. María José Gil Moltó & Nikolaos Georgantzís & Vicente Orts, 2005. "Cooperative R&D with Endogenous Technology Differentiation," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(2), pages 461-476, June.
    12. Paul O'Sullivan, 2013. "Less Is More? Research Joint Ventures And Entry Deterrence," Economics Department Working Paper Series n245-13.pdf, Department of Economics, National University of Ireland - Maynooth.
    13. Jinji, Naoto & Toshimitsu, Tsuyoshi, 2013. "Strategic R&D policy in a quality-differentiated industry with three exporting countries," Japan and the World Economy, Elsevier, vol. 28(C), pages 132-142.
    14. Yuko Kinoshita, 2000. "R&D and technology spillovers via FDI: Innovation and absorptive capacity," CERGE-EI Working Papers wp163, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    15. Arijit Mukherjee & Uday Bhanu Sinha, 2013. "Patent Protection, Southern Innovation and Welfare in a North–South Trade Model," Economica, London School of Economics and Political Science, vol. 80(318), pages 248-273, April.
    16. Engers, Maxim & Mitchell, Shannon K., 2006. "R&D policy with layers of economic integration," European Economic Review, Elsevier, vol. 50(7), pages 1791-1815, October.
    17. Kamien, Morton I. & Zang, Israel, 2000. "Meet me halfway: research joint ventures and absorptive capacity," International Journal of Industrial Organization, Elsevier, vol. 18(7), pages 995-1012, October.
    18. M. Àngels Oliva & Luis Rivera-Bátiz, 1997. "Multinationals, technology networks and international takeovers," Economics Working Papers 231, Department of Economics and Business, Universitat Pompeu Fabra.
    19. Yuko Kinoshita, 2000. "R&D and Technology Spillovers via FDI: Innovation and Absorptive Capacity," William Davidson Institute Working Papers Series 349, William Davidson Institute at the University of Michigan.

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    JEL classification:

    • O - Economic Development, Innovation, Technological Change, and Growth
    • P - Political Economy and Comparative Economic Systems

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