Trade liberalization and product R&D in a differentiated duopoly

This paper employs an intra-industry trade model with one firm in each country to examine the impact of trade liberalization on firms' incentives to engage in product R&D. We show that trade liberalization may decrease a firm's product R&D if the marginal willingness to pay for the...

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Bibliographic Details
Published inInternational review of economics & finance Vol. 56; pp. 34 - 38
Main Authors Hwang, Hong, Hsueh, Yi-Shan, Peng, Cheng-Hau
Format Journal Article
LanguageEnglish
Published Elsevier Inc 01.07.2018
Subjects
Marginal willingness to pay
Product innovation
Trade liberalization
Trade liberalization
F13
Marginal willingness to pay
L43
Product innovation
F12
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Summary:This paper employs an intra-industry trade model with one firm in each country to examine the impact of trade liberalization on firms' incentives to engage in product R&D. We show that trade liberalization may decrease a firm's product R&D if the marginal willingness to pay for the firm's innovation from its home consumers is higher than that from its foreign consumers. This negative relationship between trade liberalization and R&D investments is opposite to the standard result in the literature where the firms engage in process R&D.
ISSN:1059-0560
1873-8036
DOI:10.1016/j.iref.2018.03.015