R&D, Market Structure and Trade: A General Equilibrium Analysis

Yanes, Leopoldo J. (2008). R&D, Market Structure and Trade: A General Equilibrium Analysis. School of Economics Discussion Paper No. 361, School of Economics, University of Queensland.

Author Yanes, Leopoldo J.
Title R&D, Market Structure and Trade: A General Equilibrium Analysis
School, Department or Centre School of Economics
Institution University of Queensland
Series School of Economics Discussion Paper
Report Number No. 361
Publication date 2008
Publisher The University of Queensland School of Economics
Total pages 50
Language eng
Formatted abstract
That many industries exhibit highly concentrated market structures, even at the global level, calls for trade theoretic analyses which can accommodate this fact. We present a two-country, general equilibrium analysis in which high concentration levels can be sustained through the interaction between R&D and market structure, whilst emphasizing the effects of trade and industrial policy on wages and welfare. The world economy is characterized by asymmetric initial conditions and populations. If initial conditions are very different, freetrade reduces wages in a backward economy, relative to autarky. However, the advanced economy always achieves higher wages through trade. Welfare gains from trade arise when economies are either very similar or very different. In the intermediate case, when initial conditions are not too different, and the advanced economy’s population is not very large, the backward economy loses from trade, while the advanced economy gains. A compensation mechanism is feasible and would ensure that no nation loses from trade. The analysis provides formal criteria for the choice of trade partners and the formation of trade blocs. Moreover, industrial policy (an R&D subsidy) is shown to be neutral or ineffective, in the sense that it does not affect any real magnitudes.
Keyword International trade
Industrial policy
Product quality
Market structure
Initial conditions
Q-Index Status Provisional Code
Institutional Status UQ

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Created: Tue, 10 Mar 2015, 16:25:21 EST by Tammy Crealy on behalf of School of Economics