 Research and development and trade policies for product innovation in the presence of foreign competitionPavlo Buryi () and Sajal Lahiri Economic Modelling, 2019, vol. 80, issue C, 429-440 Abstract: This paper examines two policy instruments — a matching grant and import tariffs — for encouraging research and development (R&D) in product innovation by a domestic firm when it faces foreign competition. We do so by developing a theoretical model of product innovation where R&D effort is endogenous and its outcome uncertain. We examine the effects of a reduction in import tariffs on private expenditure on R&D, on public support for such R&D, and on total R&D expenditure. We find that in response to a reduction in import tariffs, the domestic firm always reduces its private R&D investments, but the total level of R&D expenditure (i.e., including public support) might go up depending on the level of tariffs. In particular, we find that it will go up if the initial level of tariff is higher than a critical level. When tariff is endogenous, we find that the socially optimal level of tariffs is positive. One finding that is of particular interest is that supporting private attempts to product innovate in the form of a matching grant program leads to a socially optimal level of product R&D. Keywords: Product innovation; R&D; Matching subsidy; Foreign competition; Tariffs (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:80:y:2019:i:c:p:429-440 DOI: 10.1016/j.econmod.2018.11.026 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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