Trade Policy in the Presence of Technology Licensing

24 Pages Posted: 30 Dec 2007

See all articles by Arghya Ghosh

Arghya Ghosh

UNSW Australia Business School, School of Economics

Souresh Saha

affiliation not provided to SSRN

Abstract

We consider strategic trade policy when a high-cost and a low-cost firm belonging to two different countries compete in quantities in a third country, and technology is transferable via licensing. We characterize the effects of subsidies on (i) licensing payments a new source of rents, (ii) the decision to license, and (iii) the subsidy bill difference (compared to when licensing is infeasible). We find that, in the presence of licensing, optimal strategic trade policy has several interesting features. For example, even under Cournot competition, optimal policy can be an export tax instead of an export subsidy. Also, unlike results in strategic trade policy with asymmetric costs, we find that optimal export subsidies are not necessarily positively related to the cost-competitiveness of firms. In other words, governments need not necessarily favor winners when licensing is possible. Furthermore, there exist parameterizations such that a government, if it can, might ban licensing.

Suggested Citation

Ghosh, Arghya and Saha, Souresh, Trade Policy in the Presence of Technology Licensing. Review of International Economics, Vol. 16, Iss. 1, pp. 45-68, February 2008. Available at SSRN: https://ssrn.com/abstract=1079386 or http://dx.doi.org/10.1111/j.1467-9396.2007.00728.x

Arghya Ghosh (Contact Author)

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

Souresh Saha

affiliation not provided to SSRN

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
30
Abstract Views
354
PlumX Metrics