Peer-Reviewed Journal Details
Mandatory Fields
Dewit G.;Leahy D.
2016
November
Review of International Economics
Strategic R&D Commitment and the Gains from Trade
Published
1 ()
Optional Fields
24
5
1129
1148
© 2016 John Wiley & Sons Ltd This paper examines how trade liberalization affects innovation, profits and welfare in a model of reciprocal markets when firms pre-commit to research and development (R&D). We establish that the equilibrium is not always unique and show that, with trade, R&D commitment leads to higher levels of innovation, lower profits, higher consumer surplus and higher welfare than when R&D is chosen simultaneously to output levels. Furthermore, if the effectiveness of R&D is sufficiently high, trade always yields higher welfare than autarky, implying that R&D commitment may significantly enhance the welfare gains from trade liberalization.
0965-7576
10.1111/roie.12250
Grant Details