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Protectionism under R&D policy: innovation rate and welfare

Author

Listed:
  • Felipa de Mello‐Sampayo
  • Sofia de Sousa‐Vale
  • Francisco Camões
  • Orlando Gomes

Abstract

Purpose - The purpose of this paper is to explain how eventual pressures from national lobbies may lead governments to shift from an optimal into a non‐optimal innovation policy. Design/methodology/approach - A theoretical model is developed in order to examine and explain the growth and welfare effects of optimal and non‐optimal innovation policies. The non‐optimal policy corresponds to a subsidy for national innovators that is equivalent to an optimal policy of incentives (tax cuts) to foreign investors. Since we are assessing what can nationals do with the support that could be oriented to foreign firms, we are measuring what the economy loses for not supporting foreign firms. Findings - The authors find welfare loss when supporting national R&D instead of foreign R&D and conclude that the same support given to innovation can produce strikingly different outcomes depending on who receives the support. Practical implications - The analysis allows the impact of the inefficiency caused by policies that are not sound, from a strictly economic point of view, to be measured. Originality/value - The originality of the paper is related to the assessment of the implications and to the measurement of the effects of non‐optimal R&D policies.

Suggested Citation

  • Felipa de Mello‐Sampayo & Sofia de Sousa‐Vale & Francisco Camões & Orlando Gomes, 2012. "Protectionism under R&D policy: innovation rate and welfare," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 39(1), pages 106-124, January.
    • Handle: RePEc:eme:jespps:v:39:y:2012:i:1:p:106-124
    DOI: 10.1108/01443581211192134
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    References listed on IDEAS

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    1. Gian Maria Milesi-Ferrett & Nouriel Roubini, 1995. "Growth Effects of Income and Consumption Taxes: Positive and Normative Analysis," NBER Working Papers 5317, National Bureau of Economic Research, Inc.
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    9. Felipa de Mello-Sampayo & Sofia de Sousa-Vale & Francisco Camões, 2007. "Accelerating Innovation: National R&D Subsidies versus Foreign R&D Tax Credits," Working Papers Series 1 ercwp0108, ISCTE-IUL, Business Research Unit (BRU-IUL).
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    Cited by:

    1. Tomas Havranek & Anna Sokolova, 2016. "Do Consumers Really Follow a Rule of Thumb? Three Thousand Estimates from 130 Studies Say "Probably Not"," Working Papers 2016/08, Czech National Bank.

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    More about this item

    Keywords

    Portugal; Poland; Government policy; Fiscal policy; Protectionism; International investments; Subsidies; Taxes; Innovation; Research and development; Endogenous growth; Foreign direct investment;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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