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Cost effectiveness of R&D and the robustness of Strategic Trade Policy

Kujal, Praveen and Ruiz, Juan (2004) Cost effectiveness of R&D and the robustness of Strategic Trade Policy. Working Paper. University of Essex, Department of Economics, Economics Discussion Papers, Colchester.

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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.

Item Type: Monograph (Working Paper)
Uncontrolled Keywords: Product Differentiation, Strategic Trade Policy, Policy Reversals, R&D.
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Users 161 not found.
Date Deposited: 28 Aug 2014 13:52
Last Modified: 28 Aug 2014 13:52
URI: http://repository.essex.ac.uk/id/eprint/8876

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