Dewit, Gerda and Leahy , Dermot
Strategic Investment and the Gains from Trade (N216-11).
NUI Maynooth, NUI Maynooth.
This paper examines how trade liberalisation affects innovation, profits and welfare when firms are engaging in strategic R&D investment. We show that there are multiple equilibria including an autarky equilibrium for a range of high but non-prohibitive trade costs. At lower trade costs, only the trading equilibrium survives. Welfare is U-shaped in the trade costs, so a small fall in trade costs can be welfare reducing. However we find a threshold level of the effectiveness of investment above which trade is always welfare superior to autarky.
||Reciprocal Markets; Strategic R&D Investment; Trade Costs; Trade Liberalisation; Effectiveness of R&D;
||Faculty of Social Sciences > Economics, Finance and Accounting
Ms Sandra Doherty
||07 Mar 2011 14:12
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