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Trade liberalization and product R&D in a differentiated duopoly

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Listed:
  • Hwang, Hong
  • Hsueh, Yi-Shan
  • Peng, Cheng-Hau

Abstract

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.

Suggested Citation

  • Hwang, Hong & Hsueh, Yi-Shan & Peng, Cheng-Hau, 2018. "Trade liberalization and product R&D in a differentiated duopoly," International Review of Economics & Finance, Elsevier, vol. 56(C), pages 34-38.
    • Handle: RePEc:eee:reveco:v:56:y:2018:i:c:p:34-38
    DOI: 10.1016/j.iref.2018.03.015
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    References listed on IDEAS

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    1. Haaland, Jan I. & Kind, Hans Jarle, 2008. "R&D policies, trade and process innovation," Journal of International Economics, Elsevier, vol. 74(1), pages 170-187, January.
    2. Avinash Dixit, 1979. "A Model of Duopoly Suggesting a Theory of Entry Barriers," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 20-32, Spring.
    3. Warren J Bilkey & Erik Nes, 1982. "Country-of-Origin Effects on Product Evaluations," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 13(1), pages 89-100, March.
    4. Hong Hwang & Sugata Marjit & Cheng-Hau Peng, 2016. "Trade liberalization, technology transfer, and endogenous R&D," Oxford Economic Papers, Oxford University Press, vol. 68(4), pages 1107-1119.
    5. Hwang, Hong & Peng, Cheng-Hau & Shih, Pei-Cyuan, 2014. "Parallel imports, product innovation and market structures," International Review of Economics & Finance, Elsevier, vol. 34(C), pages 237-245.
    6. Lin, Ping & Saggi, Kamal, 2002. "Product differentiation, process R&D, and the nature of market competition," European Economic Review, Elsevier, vol. 46(1), pages 201-211, January.
    7. Sebastian Braun, 2008. "Economic Integration, Process and Product Innovation, and Relative Skill Demand," Review of International Economics, Wiley Blackwell, vol. 16(5), pages 864-873, November.
    8. Maheswaran, Durairaj, 1994. "Country of Origin as a Stereotype: Effects of Consumer Expertise and Attribute Strength on Product Evaluations," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 21(2), pages 354-365, September.
    9. Kao, Kuo-Feng & Peng, Cheng-Hau, 2016. "Anti-dumping protection, price undertaking and product innovation," International Review of Economics & Finance, Elsevier, vol. 41(C), pages 53-64.
    10. Brox, James A., 2003. "The impact of free trade with the United States on the pattern of Canadian consumer spending and savings," The North American Journal of Economics and Finance, Elsevier, vol. 14(1), pages 69-87, March.
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    Cited by:

    1. Kazuhiro Takauchi & Tomomichi Mizuno, 2019. "Consumer-benefiting transport cost: The role of product innovation in a vertical structure," Discussion Papers 1911, Graduate School of Economics, Kobe University.
    2. Kazuhiro Takauchi & Tomomichi Mizuno, 2022. "Endogenous transport price, R&D spillovers, and trade," The World Economy, Wiley Blackwell, vol. 45(5), pages 1477-1500, May.

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    More about this item

    Keywords

    Product innovation; Trade liberalization; Marginal willingness to pay;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation

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