The Impact of 'At-the-Border' and 'Behind-the-Border' Policies on Cost-Reducing Research and Development uri icon

abstract

  • This research paper is aimed at understanding why border trade policies are today complemented with behind-the-border policies like output subsidies, R&D subsidies, and public R&D investments. This is a new type of protectionism that becomes prominent since the 2006-2008 economic crisis. In this paper we analyze the impact of various policies on domestic cost-reducing research and development (R&D) expenditures using an international duopolistic model with uncertainty regarding the result of the R&D process. We examine the impact of 'at-the-border' policies (import tariffs, import quotas, voluntary export restraints, and minimum price agreements) as well as 'behind-the-border' policies (output subsidies, R&D subsidies, and public R&D investments). We demonstrate new theoretical findings, in particular the increasing then decreasing impact of quotas on R&D, as well as the impact of production subsidies, public R&D investments, and minimum price agreements on private R&D. We conclude that R&D subsidies are appealing policy instruments because they support not only domestic R&D expenditures but also domestic production and profits without reducing consumers' surplus

publication date

  • 2015
  • 2015