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Technological Rivalry and Optimal Dynamic Policy in an Open Economy

Yan Bai, Keyu Jin and Dan Lu

No 31703, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: What are a country's policy options in the face of emerging technologies development in a global economy? To answer this question, we examine optimal dynamic policies in an open economy where technology is endogenously accumulated through R&D innovation. Our key insight is that a country has incentives to influence foreign innovation efforts across sectors and over time---giving rise to optimal policies even when the private innovation allocations are (Pareto) efficient. We derive explicit expressions for optimal taxes linked to both an intratemporal and an intertemporal motive to manipulate foreign technology. A country would want to levy higher tariffs in sectors in which it has a comparative advantage, at the same time invoking domestic innovation subsidies during transition. By contrast, optimal policies under exogenous technology call for uniform tariffs across sectors and no innovation policies.

JEL-codes: E23 F12 F63 O38 (search for similar items in EconPapers)
Date: 2023-09
New Economics Papers: this item is included in nep-cse, nep-ger, nep-ino, nep-int, nep-opm and nep-tid
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