Explaining Japan's Innovation and Trade: A model of Quality Competition and Dynamic Comparive Advantage

Gene Grossman

No 3194, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this paper, I develop a model of dynamic comparative advantage based on endogenous innovation. Firms in each of two countries devote resources to R&D in order to improve the quality of high-technology products. Research successes generate profit opportunities in the world market. The model predicts that a country such as Japan, with abundance of skilled labor and scarcity of natural resources, will specialize relatively in industrial innovation and in the production of high-technology goods. Data are provided to support this prediction. I use the model to explore the effects of R&D subsidies, production subsidies and trade policies on the long-run rates of innovation in trade partner countries and on the long-run pattern of trade.

Date: 1989-12
Note: ITI IFM
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Citations: View citations in EconPapers (9)

Published as Bank of Japan Monetary and Economic Studies, Vol. 8, No. 2, pp. 75-100, September 1990.

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Working Paper: EXPLAINING JAPAN'S INNOVATION AND TRADE: A MODEL OF QUALITY COMPETITION AND DYNAMIC COMPARATIVE ADVANTAGE (1989)
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