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

Yoshihiro Tomaru ()

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Mixed Oligopoly; R&D; Trade Liberalization (search for similar items in EconPapers)
JEL-codes: F13 L13 L32 (search for similar items in EconPapers)
Date: 2010-08
New Economics Papers: this item is included in nep-ino, nep-int and nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:28173

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