Abstract
This paper addresses the impact of foreign competition on the competitive advantage of domestic firms, and the role of trade policy. In an endogenous growth framework, it shows that the impact of foreign competition on R&D and productivity depends on the industry's relative position. Trade liberalization promotes innovation and enhances welfare in mature industries, but hinders growth and leads to market exit in infant industries with a large productivity gap. In the latter case, temporary protection promotes the survival of the firm, and increases welfare, at the margin. Hence, we integrate the ‘old’ argument for the temporary protection of infant industries with the notion that foreign competition fosters innovation and productivity.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
