Abstract
This article estimates a dynamic structural model of firm R&D investment in twelve Swedish manufacturing industries and uses it to measure rates of return to R&D and to simulate the impact of trade restrictions on the investment incentives. Export market profits are a substantial source of the expected return to R&D. R&D spending is found to have a larger impact on firm productivity in the export market than in the domestic market. Counterfactual simulations show that trade restrictions lower both the expected return to R&D and R&D investment level, thus reducing an important source of the dynamic gains from trade. A 10% tariff on Swedish exports reduces the expected benefits of R&D for the median firm by 18.6% and lowers the amount of R&D spending by 7.6% in the high-tech industries. The corresponding reductions in the low-tech industries are 20.6% and 5.5%, respectively. R&D adjustments in response to export tariffs mainly occur on the intensive, rather than the extensive, margin.
Original language | English |
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Pages (from-to) | 1318-1362 |
Number of pages | 45 |
Journal | Journal of the European Economic Association |
Volume | 21 |
Issue number | 4 |
Early online date | 9 Nov 2022 |
DOIs | |
Publication status | Published - 4 Aug 2023 |
JEL classifications
- f14 - Empirical Studies of Trade
- l20 - Firm Objectives, Organization, and Behavior: General
- o32 - Management of Technological Innovation and R&D
Keywords
- TRADE LIBERALIZATION
- SUNK COSTS
- INNOVATION
- PRODUCTIVITY