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Competitiveness-shifting effects and the prisoner?s dilemma in international R&D subsidy wars

Armando Garcia Pires ()

International Economics, 2015, issue 142, 32-49

Abstract: We analyze the incentives to subsidize R&D when there is an R&D leader and an R&D follower. Without government intervention, the R&D leader always achieves higher cost competitiveness than the R&D follower. In the presence of R&D subsidies, the country that hosts the R&D follower offers higher R&D subsidies than the country that hosts the R&D leader. As a result, competitiveness-shifting effects arise, since due to the R&D subsidy the R&D follower achieves higher cost competitiveness than the R&D leader. Consequently, the country that hosts the R&D follower does not face a prisoner?s dilemma in international subsidy wars, since even when the foreign country retaliates, it is always better off when it intervenes.

Keywords: R&D subsidies; Competitiveness-shifting effects (search for similar items in EconPapers)
JEL-codes: F13 H52 L13 L52 O31 (search for similar items in EconPapers)
Date: 2015
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