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Cost effectiveness of R&D and the robustness of strategic trade policy

Praveen Kujal () and Juan Ruiz ()

UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de Economía

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 and D and subsequently compete in the market. Governments subsidize exports under Cournot competition. Under Bertrand competition, export subsidies are positive whenever R and D is sufficiently costeffective at reducing marginal costs, and negative otherwise. The trade policy reversal found in models without endogenous sunk costs disappears if R and D is sufficiently cost-effective. Output subsidies are more robust than implied by the recent literature.

Date: 2003-01
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Related works:
Working Paper: Cost effectiveness of R&D and the robustness of Strategic Trade Policy (2004) Downloads
Working Paper: Cost Effectiveness of R&D and the Robustness of Strategic Trade Policy (2003) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:cte:werepe:we030401

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