Quality-Improving R&D, Trade Barriers, and Foreign Direct Investment

Jeffrey Heinrich ()

No 199712, Working Papers from University of Hawaii at Manoa, Department of Economics

Abstract: This investigation pits Cournot oligopolists against each other in a model of quality and R&D choice. A firm gains a strategic advantage over its rival when it is able to sell in more countries due to the jointness of quality improvements across production locations. Trade barriers that restrict access to a market put the restricted firm at a disadvantage, the degree of disadvantage being stronger under a quota than under a tariff. Given that FDI (foreign direct investment) depends on this disadvantage, quotas present a stronger incentive to undertake FDI than a tariff. Also, in this model it is never possible for a quota to lead to quality upgrading of imports due to the associated disadvantage of the importing firm in quality-improving R&D.

Keywords: multimarket economies of scale; foreign direct investment; strategic R&D; quality competition; trade policy (search for similar items in EconPapers)
JEL-codes: F12 F13 F23 L13 L15 (search for similar items in EconPapers)
Pages: 33 pages
Date: 1997
Note: Rough draft--please do not cite without permission from the author.
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