Sunk Costs of R&D, Trade and Productivity: The Moulds Industry Case

39 Pages Posted: 11 Aug 2017

See all articles by Carlos Daniel Santos

Carlos Daniel Santos

New University of Lisbon - Nova School of Business and Economics

Date Written: August 2017

Abstract

International trade can create conditions for technological innovation and productivity growth. The mechanism linking trade and innovation is simple. By increasing access to foreign markets, trade allows the best firms to exploit the economies of scale in R&D. The potential to steal market share increases as product differentiation decreases. To measure the empirical importance of this mechanism, I set up and estimate a dynamic equilibrium model with endogenous size and productivity decisions. I then illustrate how the European economic integration induced innovation in the Portuguese Moulds industry and how a potential withdrawal from the EU would negatively affect innovation.

Suggested Citation

Santos, Carlos Daniel, Sunk Costs of R&D, Trade and Productivity: The Moulds Industry Case (August 2017). The Economic Journal, Vol. 127, Issue 603, pp. 1626-1664, 2017, Available at SSRN: https://ssrn.com/abstract=3016856 or http://dx.doi.org/10.1111/ecoj.12343

Carlos Daniel Santos (Contact Author)

New University of Lisbon - Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

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