Cost Effectiveness of R&D and the Robustness of Strategic Trade Policy

Praveen Kujal () and Juan M. Ruiz ()

International Trade from EconWPA

Abstract: This paper analyzes the incentives for governments to impose export subsidies when firms invest in a cost saving technology before market competition. Governments first impose an export subsidy or a tax. After observing export policy, firms invest in cost reducing R&D and subsequently compete in the market. Governments subsidize exports under Cournot competition. Under Bertrand competition, export subsidies are positive whenever R&D is sufficiently cost-effective at reducing marginal costs,and negative otherwise.The trade policy reversal found in models without endogenous sunk costs disappears if R&D is sufficiently cost-effective. Output subsidies are more robust than implied by the recent literature.

Keywords: Product Differentiation; Strategic Trade Policy; Policy Reversals; R&D. (search for similar items in EconPapers)
JEL-codes: F12 F13 L13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pke
Date: 2003-02-04
Note: Type of Document - pdf file; prepared on Scientific Workplace; to print on Any; pages: 36 ; figures: included in text
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http://129.3.20.41/eps/it/papers/0302/0302001.pdf (application/pdf)

Related works:
Working Paper: Cost effectiveness of R&D and the robustness of Strategic Trade Policy (2003)
Working Paper: Cost effectiveness of R&D and the robustness of Strategic Trade Policy (2004)
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