Cost effectiveness of R&D and the robustness of Strategic Trade Policy

Praveen Kujal and Juan Ruiz

Economics Discussion Papers from University of Essex, Department of Economics

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. Output subsidies are more robust than implied by the recent literature.

Keywords: Product Differentiation; Strategic Trade Policy; Policy Reversals; R&D. (search for similar items in EconPapers)
Date: 2004
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Related works:
Working Paper: Cost effectiveness of R&D and the robustness of strategic trade policy (2003)
Working Paper: Cost Effectiveness of R&D and the Robustness of Strategic Trade Policy (2003)
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