Globalization and Strategic Research Investments

Anna Eulerich, geb. Bohnstedt, Christian Schwarz () and Jens Suedekum
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Christian Schwarz: University of Duisburg-Essen

No 5405, IZA Discussion Papers from IZA Network @ LISER

Abstract: We develop a general equilibrium model of international trade with heterogeneous firms, where countries can invest into basic research to improve their technological potential. These research investments tighten firm selection and raise the average productivity of firms in the market, thereby implying lower consumer prices and higher welfare. In an open economy, there is also a strategic investment motive since a higher technological potential gives domestic firms a competitive advantage in trade. Countries tend to over-invest due to this strategic motive. There are thus welfare gains from coordinating research investments. The over-investment problem turns to an under-investment problem if there are sufficiently strong cross-country spillovers of basic research investments.

Keywords: international trade; strategic trade policy; basic research; heterogeneous firms; public research investments; public R&D (search for similar items in EconPapers)
JEL-codes: F12 F13 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2010-12
New Economics Papers: this item is included in nep-ino and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published - published in: Research Policy, 2012, 41 (1), 13-23

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