Globalization and Strategic Research Investments

29 Pages Posted: 3 Jan 2011

See all articles by Anna Bohnstedt

Anna Bohnstedt

University of Duisburg-Essen - Mercator School of Management

Christian Schwarz

University of Applied Sciences Duesseldorf

Jens Suedekum

Heinrich-Heine-University Duesseldorf, Duesseldorf Institute for Competition Economics (DICE); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Institute for the Study of Labor (IZA)

Abstract

We develop a general equilibrium model of international trade with heterogeneous firms, where countries can invest into basic research to improve their technological potential. These research investments tighten firm selection and raise the average productivity of firms in the market, thereby implying lower consumer prices and higher welfare. In an open economy, there is also a strategic investment motive since a higher technological potential gives domestic firms a competitive advantage in trade. Countries tend to over-invest due to this strategic motive. There are thus welfare gains from coordinating research investments. The over-investment problem turns to an under-investment problem if there are sufficiently strong cross-country spillovers of basic research investments.

Keywords: public research investments, public R&D, international trade, heterogeneous firms, basic research, strategic trade policy

JEL Classification: F12, F13

Suggested Citation

Bohnstedt, Anna and Schwarz, Christian and Südekum, Jens, Globalization and Strategic Research Investments. IZA Discussion Paper No. 5405, Available at SSRN: https://ssrn.com/abstract=1733730

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

Jens Südekum

Heinrich-Heine-University Duesseldorf, Duesseldorf Institute for Competition Economics (DICE) ( email )

Universitaetsstr. 1
Duesseldorf, NRW 40225
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

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