Open Access
International Competition and U.S. R&D Subsidies: A Quantitative Welfare Analysis
Loading...
License
Access Rights
Cadmus Permanent Link
Full-text via DOI
ISBN
ISSN
1830-7728
Issue Date
Type of Publication
LC Subject Heading
Other Topic(s)
EUI Research Cluster(s)
Initial version
Published version
Succeeding version
Preceding version
Published version part
Earlier different version
Initial format
Author(s)
Citation
EUI MWP; 2008/14
Cite
IMPULLITTI, Giammario, International Competition and U.S. R&D Subsidies: A Quantitative Welfare Analysis, EUI MWP, 2008/14 - https://hdl.handle.net/1814/8528
Abstract
The geographical distribution of R&D investment changes dramatically in the 1970s
and 1980s. In the early 1970s U.S. firms are the uncontested world leaders in R&D
investment in most manufacturing sectors. Later, led by Japan and Europe, foreign firms
start challenging American R&D leadership in many sectors of the economy. In this
period of increasing competition we also observe a substantial increase in the U.S. R&D
subsidy. In a version of the multi-country quality ladder growth model I study the
effects of foreign R&D competition on domestic welfare and on the optimal R&D
subsidy. I build a new empirical index of international R&D rivalry that can be used to
perform quantitative analysis in this type of frameworks. In a calibrated version of the
model I focus on the period 1979-1991 and perform the following quantitative
exercises: first, I evaluate the quantitative effects of the observed increase in foreign
R&D competition on U.S. welfare. I find that the positive growth effect and the
negative business-stealing effect of foreign competition on U.S. welfare substantially
balance each other, and the overall welfare effect of competition is negligible - less then
1 percent of per-capita consumption. Moreover, using estimates of the effective U.S.
R&D subsidy rate, I compute the distance from optimality of the observed subsidy at
each level of competition. I find that international competition increases the optimal
subsidy and that, surprisingly, the U.S. subsidy observed in the data is fairly close to the
optimal subsidy.