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Quality-Improving R&D, Trade Barriers, and Foreign Direct Investment

Author

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  • Jeffrey Heinrich

Abstract

This investigation pits Cournot oligopolists against each other in a model of quality and R&D choice. A firm gains a strategic advantage over its rival when it is able to sell in more countries due to the jointness of quality improvements across production locations. Trade barriers that restrict access to a market put the restricted firm at a disadvantage, the degree of disadvantage being stronger under a quota than under a tariff. Given that FDI (foreign direct investment) depends on this disadvantage, quotas present a stronger incentive to undertake FDI than a tariff. Also, in this model it is never possible for a quota to lead to quality upgrading of imports due to the associated disadvantage of the importing firm in quality-improving R&D.

Suggested Citation

  • Jeffrey Heinrich, 1997. "Quality-Improving R&D, Trade Barriers, and Foreign Direct Investment," Working Papers 199712, University of Hawaii at Manoa, Department of Economics.
    • Handle: RePEc:hai:wpaper:199712
    Note: Rough draft--please do not cite without permission from the author.
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    File URL: http://www.economics.hawaii.edu/research/workingpapers/88-98/WP_97-12.pdf
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    More about this item

    Keywords

    multimarket economies of scale; foreign direct investment; strategic R&D; quality competition; trade policy;
    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
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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