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Credibility of Protection and Incentives to Innovate

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  • Miyagiwa, Kaz
  • Ohno, Yuka

Abstract

In recent trade policy debates it is often argued that temporary protection stimulates innovation. This paper shows that the validity of the argument depends on the perceived credibility of protection policy. If it is suspected that temporary protection will be removed early should innovation occur before its terminal date, the protected firm invests less in R&D than it does under free trade. If it is expected that protection will be extended should no innovation have occurred by its terminal date, investment falls below the free-trade level, and eventually to zero, as the terminal date is approached. Copyright 1999 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Miyagiwa, Kaz & Ohno, Yuka, 1999. "Credibility of Protection and Incentives to Innovate," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(1), pages 143-163, February.
    • Handle: RePEc:ier:iecrev:v:40:y:1999:i:1:p:143-63
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    Cited by:

    1. E. Young Song, 2005. "Temporary Protection and Technology Choice under the Learning Curve," Review of International Economics, Wiley Blackwell, vol. 13(2), pages 391-396, May.
    2. Crowley, Meredith A., 2006. "Do safeguard tariffs and antidumping duties open or close technology gaps?," Journal of International Economics, Elsevier, vol. 68(2), pages 469-484, March.
    3. Kaz Miyagiwa & Huasheng Song & Hylke Vandenbussche, 2016. "Accounting for Stylised Facts about Recent Anti-dumping: Retaliation and Innovation," The World Economy, Wiley Blackwell, vol. 39(2), pages 221-235, February.
    4. Kitano, Taiju & Ohashi, Hiroshi, 2009. "Did US safeguards resuscitate Harley-Davidson in the 1980s?," Journal of International Economics, Elsevier, vol. 79(2), pages 186-197, November.
    5. Meredith A. Crowley, 2003. "An introduction to the WTO and GATT," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 27(Q IV), pages 42-57.
    6. Yukiko Sawada, 2017. "The effect of technology choice on specialization and welfare in a two‐country model," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 50(4), pages 1104-1129, November.
    7. Bourreau, Marc & Manenti, Fabio M., 2023. "Selling cross-border in online markets: The impact of the ban on geoblocking strategies," International Journal of Industrial Organization, Elsevier, vol. 86(C).
    8. Jung Park, Tae, 2013. "International Economic Law, and Institutions in Developing Countries," Estey Centre Journal of International Law and Trade Policy, Estey Centre for Law and Economics in International Trade, vol. 14(2), pages 1-31.
    9. Benjamin H. Liebman & Kara M. Reynolds, 2009. "Innovation Through Protection: Does Safeguard Protection Increase Investment in R and D?," Working Papers 2009-18, American University, Department of Economics.
    10. Miravete, Eugenio J., 2003. "Time-consistent protection with learning by doing," European Economic Review, Elsevier, vol. 47(5), pages 761-790, October.
    11. Delia Baghdasaryan & Krešimir Žigić, 2010. "Tariffs, market conduct and government commitment," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 18(1), pages 91-122, January.
    12. Benjamin H. Liebman & Kara M. Reynolds, 2013. "Innovation through Protection: Does Safeguard Protection Increase Investment in Research and Development?," Southern Economic Journal, John Wiley & Sons, vol. 80(1), pages 205-225, July.
    13. Ederington, Josh & McCalman, Phillip, 2011. "Infant industry protection and industrial dynamics," Journal of International Economics, Elsevier, vol. 84(1), pages 37-47, May.
    14. Traca, Daniel A., 2002. "Imports as competitive discipline: the role of the productivity gap," Journal of Development Economics, Elsevier, vol. 69(1), pages 1-21, October.
    15. Laura Rovegno, 2013. "Trade protection and market power: evidence from US antidumping and countervailing duties," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 149(3), pages 443-476, September.
    16. 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.
    17. Kamal Saggi, 2002. "Trade, Foreign Direct Investment, and International Technology Transfer: A Survey," The World Bank Research Observer, World Bank, vol. 17(2), pages 191-235, September.
    18. Kresimir Zigic, 2011. "Strategic Interactions in Markets with Innovative Activity: The Cases of Strategic Trade Policy and Market Leadership," CERGE-EI Books, The Center for Economic Research and Graduate Education - Economics Institute, Prague, edition 1, number b06, May.
    19. Crowley, Meredith A. & Ortino, Federico, 2021. "Establishing a New Role for Antidumping Policy: Protection of an Unestablished Industry (Morocco–Hot-Rolled Steel (Turkey))," World Trade Review, Cambridge University Press, vol. 20(4), pages 533-545, October.
    20. Chen, Fang-Yueh, 2023. "Trade warfare and sanctions in vertically related markets," Economic Modelling, Elsevier, vol. 121(C).
    21. Meredith A. Crowley, 2006. "Why are safeguards needed in a trade agreement?," Working Paper Series WP-06-06, Federal Reserve Bank of Chicago.

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