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The effects of trade liberalization on R&D investments: the case of the Uruguayan manufacturing industry

Author

Listed:
  • Walter García Fontes

    (Universitat Pompeu Fabra, Barcelona)

  • Ruben Tansini

    (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República, Uruguay.)

Abstract

In this paper we study the effects of increasing imports and foreign firm supply, as a consequence of trade liberalization policies, on the innovative activities of firms in a small developing economy. This is an interesting case as very little research exists on the R&D investments of firms in developing countries. The results show that foreign presence has a positive but not always significant effect, while import competition has a negative and significant effect on R&D investments. Firms that are able to export are also more innovative. The process of reallocation of resources from import substituting industries towards export-oriented industries, caused by the opening of the economy, seems to have reduced the incentives for R&D investments for firms in traditional industries, while increasing those for export-oriented firms. Taking into account the defensive and imitative nature of innovative activities of firms in developing countries, these results go in contrast with the evidence from developed countries, where foreign direct investments and imports seem to show positive effects on innovative activities.

Suggested Citation

  • Walter García Fontes & Ruben Tansini, 1996. "The effects of trade liberalization on R&D investments: the case of the Uruguayan manufacturing industry," Documentos de Trabajo (working papers) 0396, Department of Economics - dECON.
    • Handle: RePEc:ude:wpaper:0396
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