Cost effectiveness of R&D and strategic trade policy

Praveen Kujal and Juan Ruiz

No 701, Working Papers from Banco de España

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. Thus, output subsidies seem 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)
Pages: 49 pages
Date: 2007-02
New Economics Papers: this item is included in nep-ino, nep-int and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Cost Effectiveness of R&D and Strategic Trade Policy (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:0701

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