Explaining Japan's Innovation and Trade: A Model of Quality Competition and Dynamic Comparative Advantage

Gene M. Grossman
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Gene M. Grossman: Professor, Princeton University, Princeton, New Jersey, U.S.A.

Monetary and Economic Studies, 1990, vol. 8, issue 2, 75-100

Abstract: In this paper, I develop a model of dynamic comparative advantage based on endogenous innovation. Firms devote resources to R&D in order to improve the quality of high-technology products. Research successes generate profit opportunities in the world market. The model predicts that a country such as Japan, with an abundance of skilled labor and scarcity of natural resources, will specialize relatively in industrial innovation and in the production of high-technology goods. I use the model to explore the effects of R&D subsidies, production subsidies and trade policies on the long-run rates of innovation in the two trade partner countries and on the long-run pattern of trade.

Date: 1990
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Persistent link: https://EconPapers.repec.org/RePEc:ime:imemes:v:8:y:1990:i:2:p:75-100

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