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R&D and Price Elasticity of Demand

Author

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  • Dorothea Lucke
  • Philipp J. H. Schröder
  • Dieter Schumacher

Abstract

This note explores the relationship between the price elasticity of demand and the R&D intensity of the product. We introduce the concept of R&D intensity into a standard Dixit-Stiglitz/Krugman-type setting. R&D activity is treated as a fixed cost of production. Within this framework, sectors with a higher R&D intensity show a lower price elasticity of demand. This proposition is confirmed by an empirical investigation of export demand for manufactured goods from major industrialised countries. Consequently, real exchange rate changes have an impact on the commodity structure of exports.

Suggested Citation

  • Dorothea Lucke & Philipp J. H. Schröder & Dieter Schumacher, 2004. "R&D and Price Elasticity of Demand," Discussion Papers of DIW Berlin 430, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp430
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    References listed on IDEAS

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    1. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
    2. Morris Goldstein & Mohsin S. Khan, 2017. "Income and Price Effects in Foreign Trade," World Scientific Book Chapters, in: TRADE CURRENCIES AND FINANCE, chapter 1, pages 3-81, World Scientific Publishing Co. Pte. Ltd..
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    5. Rian Beise-Zee & Christian Rammer, 2006. "Local User-Producer Interaction in Innovation and Export Performance of Firms," Small Business Economics, Springer, vol. 27(2), pages 207-222, October.
    6. Abdelhak Senhadji, 1998. "Time-Series Estimation of Structural Import Demand Equations: A Cross-Country Analysis," IMF Staff Papers, Palgrave Macmillan, vol. 45(2), pages 236-268, June.
    7. Krugman, Paul R, 1981. "Intraindustry Specialization and the Gains from Trade," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 959-973, October.
    8. Wilson, John F & Takacs, Wendy E, 1979. "Differential Responses to Price and Exchange Rate Influences in the Foreign Trade of Selected Industrial Countries," The Review of Economics and Statistics, MIT Press, vol. 61(2), pages 267-279, May.
    9. Abdelhak S. Senhadji & Claudio E. Montenegro, 1999. "Time Series Analysis of Export Demand Equations: A Cross-Country Analysis," IMF Staff Papers, Palgrave Macmillan, vol. 46(3), pages 1-2.
    10. Robert M. Stern & Jonathan Francis & Bruce Schumacher, 1976. "Price Elasticities in International Trade," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-03137-5, March.
    11. Salvador Barrios & Holger Görg & Eric Strobl, 2003. "Explaining Firms’ Export Behaviour: R&D, Spillovers and the Destination Market," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(4), pages 475-496, September.
    12. Houthakker, Hendrik S & Magee, Stephen P, 1969. "Income and Price Elasticities in World Trade," The Review of Economics and Statistics, MIT Press, vol. 51(2), pages 111-125, May.
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    Cited by:

    1. Eugenia Nazrullaeva, 2008. "Measurement of technological progress in Russia (in Russian)," Quantile, Quantile, issue 5, pages 59-82, September.
    2. Rian Beise-Zee & Christian Rammer, 2006. "Local User-Producer Interaction in Innovation and Export Performance of Firms," Small Business Economics, Springer, vol. 27(2), pages 207-222, October.
    3. Lücke Dorothea & Schröder Philipp J.Η. & Schumacher Dieter, 2005. "A Note on R&D and Price Elasticity of Demand," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 225(6), pages 688-698, December.

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    More about this item

    Keywords

    R&D intensity; Price elasticity; Exports;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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