In this paper, the authors consider the case for subsidies toward firms which generate R&D spillovers in open economies. They show that, in the presence of strategic behavior by firms, many expected results are overturned. Local R&D spillovers to other domestic firms may justify an R&D tax...

The authors consider the free-market and socially optimal outcomes in a general oligopoly model with many firms which first engage in R&D and then compete in either output or price. Strategic behavior by firms tends to reduce output, R&D, and welfare and so justifies higher subsidies except when...

This article provides an introduction to the trade restrictiveness index (TRI), which equals the uniform tariff that is welfare equivalent to a given pattern of trade protection. Unlike standard measures of trade restrictiveness, the TRI has a solid theoretical basis, can incorporate both...

Empirical evidence strongly suggests that R&D increases a firm’s "absorptive capacity" (its ability to absorb spillovers from other firms) as well as contributing directly to profitability. We explore the theoretical implications of this. We specify a general model of the absorptive capacity...

This paper reviews the theory of foreign direct investment (FDI), focusing on an apparent conflict between theory and recent trends in the globalized world. The bulk of FDI is horizontal rather than vertical, but horizontal FDI is discouraged when trade costs fall. This seems to conflict with...

This paper presents a general result for simultaneous reform of tariffs and quotas in a small open economy, where some of the quota rents do not accrue to domestic residents. Absent highly perverse income effects, welfare must rise following a uniform proportionate reduction in tariffs and a...