International R&D Networks

Abstract

This paper considers the Goyal and Moraga-Gonzalez (Rand Journal of Economics, Vol. 32 (2001), pp. 686-707) model of strategic R&D collaboration networks in the open economy framework. The R&D is d'Aspremont and Jacquemin (1988) process innovation and collaboration takes the form of Research Joint Ventures (RJV) in which firms cooperate in R&D and share R&D costs but compete in product markets. Countries decide whether to establish free trade links while firms decide whether and with whom to form RJVs. A double layer pairwise stability concept is introduced to characterize equilibrium network structures. In contrast with conventional wisdom, it is shown that global free trade reduces collaborative R&D levels. We give pairwise stable international R&D networks corresponding to each specific trade network structure for different ranges of parameter values. We also give conditions for which pairwise stable R&D networks are welfare maximizing. Stability and efficiency are congruent when R&D cost is either too high or too low. Implications for when trade can facilitate international R&D collaboration are offered. A large public spillover effect is detrimental to R&D network when trade networks are regional.

Keywords: R&D network, Spillover, Free trade

JEL Classification: L13, L15, D43