R&D Policies, Trade and Process Innovation

Jan I. Haaland and Hans Jarle Kind

No 4784, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We set up a simple trade model with two countries hosting one firm each. The firms invest in cost-reducing R&D, and each government may grant R&D subsidies to the domestic firm. We show that it is optimal for a government to provide higher R&D subsidies the lower the level of trade costs, even if the firms are independent monopolies. If firms produce imperfect substitutes, policy competition may become so fierce that only one of the firms survives. International policy harmonization eliminates policy competition and ensures a symmetric outcome. However, it is shown that harmonization is not necessarily welfare-maximizing. The optimal coordinated policies may imply an asymmetric outcome with R&D subsidies to only one of the firms.

Keywords: Trade; R&d; Subsidies; Process innovation (search for similar items in EconPapers)
JEL-codes: F12 F13 F15 (search for similar items in EconPapers)
Date: 2004-12
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (16)

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Journal Article: R&D policies, trade and process innovation (2008)
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