Economics at your fingertips  

International Competition and U.S. R&D Subsidies: A Quantitative Welfare Analysis

Giammario Impullitti

No 15-08, Economic Reports from FEDEA

Abstract: The geographical distribution of R&D investment changes dramatically in the 1970s and 1980s. In the early 1970s U.S. firms are the uncontested world leaders in R&D investment in most manufacturing sectors. Later, led by Japan and Europe, foreign firms start challenging American R&D leadership in many sectors of the economy. In this period of increasing competition we also observe a substantial increase in the U.S. R&D subsidy. In a version of the multi-country quality ladder growth model I study the effects of foreign R&D competition on domestic welfare and on the optimal R&D subsidy. I build a new empirical index of international R&D rivalry that can be used to perform quantitative analysis in this type of frameworks. In a calibrated version of the model I focus on the period 1979-1991 and perform the following quantitative exercises: first, I evaluate the quantitative effects of the observed increase in foreign R&D competition on U.S. welfare. I find that the positive growth effect and the negative business-stealing effect of foreign competition on U.S. welfare substantially balance each other, and the overall welfare effect of competition is negligible - less then 1 percent of per-capita consumption. Moreover, using estimates of the effective U.S. R&D subsidy rate, I compute the distance from optimality of the observed subsidy at each level of competition. I find that international competition increases the optimal subsidy and that, surprisingly, the U.S. subsidy observed in the data is fairly close to the optimal subsidy.

Date: 2008-06
New Economics Papers: this item is included in nep-com, nep-ino, nep-ipr, nep-pr~ and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6) Track citations by RSS feed

Downloads: (external link) (application/pdf)

Related works:
Working Paper: International Competition and U.S. R&D Subsidies: A Quantitative Welfare Analysis (2008) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this paper

More papers in Economic Reports from FEDEA
Bibliographic data for series maintained by Carmen Arias ().

Page updated 2022-01-13
Handle: RePEc:fda:fdacee:15-08