International Welfare Effects from Country-Specific R&D Subsidies

Anders Sørensen

No 96-15, EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics

Abstract: The private return to R&D appears to be lower than the social return. Consequently, the focus on R&D promoting policies has intensified. This paper investigates international spillover effects from country-specific R&D subsidies in an interdependent open economy model of identical countries. A welfare evaluation is provided by decomposing the welfare effect into changes that work through (a) available products, (b) intertemporal allocation of consumption, (c) wealth in the private sector, and (d) terms of trade. The model predicts that domestic welfare increases when an R&D subsidy is implemented abroad. Moreover, the policy inactive country always prefers the foreign R&D subsidy to be higher.

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Persistent link: https://EconPapers.repec.org/RePEc:kud:epruwp:96-15

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