International Process R&D with Spillovers

International Process R&D with Spillovers

This paper analyzes the relationship between exports, domestic sales, R&D investments and trade costs, and the relationship between those factors and R&D spillovers in the presence of R&D spillovers when an international market is monopolized and international competition takes place. Moreover, it examines non-cooperative, optimal R&D policies in the same circumstance. We show that exports, domestic sales, and R&D investments are decreasing in level of trade costs and they are increasing in level of R&D spillovers for any given subsidies if trade costs are insignificant in the former. However, whether domestic sales are increasing or decreasing with the level of trade costs depends on the level of R&D spillovers while exports and R&D investments are decreasing, and whether export and domestic sales are increasing or decreasing with the level of R&D spillovers for any given subsidies if trade costs are insignificant depends on the parameters while R&D investments are increasing under the same circumstance in the latter. We also show that a government’s optimal policy is R&D subsidies, and the optimal R&D subsidy rate is increasing in the level of R&D spillovers for all positive degrees of R&D spillovers in the former. However, whether the optimal R&D subsidy rate is increasing or decreasing in the level of R&D spillovers depends on parameters while a government’s optimal policy is also R&D subsidies in the latter.