Working Paper: CEPR ID: DP15369
Authors: Florin Maican; Matilda Orth; Mark J Roberts; Van Anh Vuong
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. R&D spending is found to have a larger impact on firm productivity in the export market than in the domestic market. Export market profits are a substantial source of the expected return to R&D. 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 20 percent tariff on Swedish exports reduces the expected benefits of R&D by an average of 32.2 percent and lowers the amount of R&D spending by 13.9 percent in the high-tech industries. The corresponding reductions in the low-tech industries are 30.4 and 8.9 percent, respectively. R&D adjustments in response to export tariffs mainly occur on the intensive, rather than the extensive, margin.
Keywords: R&D; Innovation; Trade; Productivity; Export
JEL Codes: L6; O3; L13; F13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| export market profits (F10) | expected return on R&D (O32) |
| tariff on Swedish exports (F10) | expected benefits from R&D (O39) |
| tariff on Swedish exports (F10) | R&D spending (O32) |
| R&D spending (O32) | firm productivity (D22) |
| export market profitability (F10) | R&D decisions (O32) |
| R&D investment (O32) | future productivity (O49) |
| R&D investment (O32) | firm value (G32) |