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R&D and Price Elasticity of Demand

Dorothea Lucke, Philipp Schröder and Dieter Schumacher

No 430, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: This note explores the relationship between the price elasticity of demand and the R&D intensity of the product. We introduce the concept of R&D intensity into a standard Dixit-Stiglitz/Krugman-type setting. R&D activity is treated as a fixed cost of production. Within this framework, sectors with a higher R&D intensity show a lower price elasticity of demand. This proposition is confirmed by an empirical investigation of export demand for manufactured goods from major industrialised countries. Consequently, real exchange rate changes have an impact on the commodity structure of exports.

Keywords: R&D intensity; Price elasticity; Exports (search for similar items in EconPapers)
JEL-codes: F14 D40 F12 (search for similar items in EconPapers)
Date: 2004
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