Cost Effectiveness of R&D and the Robustness of Strategic Trade Policy

Praveen Kujal and Juan Ruiz

International Trade from University Library of Munich, Germany

Abstract: This paper analyzes the incentives for governments to impose export subsidies when firms invest in a cost saving technology before market competition. Governments first impose an export subsidy or a tax. After observing export policy, firms invest in cost reducing R&D and subsequently compete in the market. Governments subsidize exports under Cournot competition. Under Bertrand competition, export subsidies are positive whenever R&D is sufficiently cost-effective at reducing marginal costs,and negative otherwise.The trade policy reversal found in models without endogenous sunk costs disappears if R&D is sufficiently cost-effective. Output subsidies are more robust than implied by the recent literature.

Keywords: Product Differentiation; Strategic Trade Policy; Policy Reversals; R&D. (search for similar items in EconPapers)
JEL-codes: F12 F13 L13 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2003-02-04, Revised 2003-02-04
New Economics Papers: this item is included in nep-pke
Note: Type of Document - pdf file; prepared on Scientific Workplace; to print on Any; pages: 36 ; figures: included in text
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Cost effectiveness of R&D and the robustness of Strategic Trade Policy (2004)
Working Paper: Cost effectiveness of R&D and the robustness of strategic trade policy (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpit:0302001

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