Strategic Technology Investments in Open Economies

36 Pages Posted: 3 Sep 2010

See all articles by Anna Bohnstedt

Anna Bohnstedt

University of Duisburg-Essen - Mercator School of Management

Christian Schwarz

University of Applied Sciences Duesseldorf

Date Written: August 1, 2010

Abstract

We study a general equilibrium model of international trade with heterogeneous firms, where countries can strategically invest in technology. The countries’ motive is to improve firms’ productivity, leading to a competitive advantage in international trade. We are interested in how trade liberalization affects this governmental incentive to invest in technology. In the closed economy countries invest if consumers have a sufficiently high preference for varieties. In the open economy we analyze the Nash-equilibrium policy and the cooperative policy. If there are no cross-country investment spillovers, countries strategically compete in their investment levels and increase their investments with higher trade openness. From a social perspective we have an overinvestment problem. If there are cross-country investment spillovers, we differentiate between weak and strong spillovers. In both cases the cooperative solution predicts a positive relationship between investments and trade openness. If there are weak (strong) spillovers, we find a positive (hump-shaped) relationship between technology investments and trade openness in the Nash-equilibrium. From a social perspective we obtain an over (under)-investment problem if spillovers are weak (strong).

Keywords: Heterogeneous firms, technology investments, monopolistic competition, strategic trade policy

JEL Classification: F12, F13

Suggested Citation

Bohnstedt, Anna and Schwarz, Christian, Strategic Technology Investments in Open Economies (August 1, 2010). Ruhr Economic Paper No. 199, Available at SSRN: https://ssrn.com/abstract=1670594 or http://dx.doi.org/10.2139/ssrn.1670594

Anna Bohnstedt (Contact Author)

University of Duisburg-Essen - Mercator School of Management ( email )

Lotharstraße 65
Duisburg, Nordrhein-Westfalen 47057
Germany

Christian Schwarz

University of Applied Sciences Duesseldorf ( email )

Münsterstraße
156
Düsseldorf, 40476
Germany

HOME PAGE: http://https://wiwi.hs-duesseldorf.de/personen/christian.schwarz/Seiten/default.aspx

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
17
Abstract Views
852
PlumX Metrics