We develop a two-country model of endogenous innovation and imitation in order to study the interactions between these two processes. Firms in the North race to bring out the next generation of a set of technology-intensive products. Each product potentially can be improved a countably infinite number of times, but quality improvements require the investment of resources and entail uncertain prospects of success. In the South entrepreneurs invest resources in order to learn the production processes that have been developed in the North. All R&D investment decisions are made by forward-looking, profit-maximizing entrepreneurs. The steady-state equilibrium is characterized by constant aggregate rates of innovation and imitation. We study how these rates respond to changes in the sizes of the two regions and to policies in each region to promote learning.

Journal Article Trade and Industrial Policy Under Oligopoly: Reply Get access Jonathan Eaton, Jonathan Eaton University of Virginia Search for other works by this author on: Oxford Academic Google Scholar Gene M. Grossman Gene M. Grossman Princeton University Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 103, Issue 3, August 1988, Pages 603–607, https://doi.org/10.2307/1885548 Published: 01 August 1988

In this paper we provide an integrative treatment of the welfare effects of trade and industrial policy under oligopoly, and characterize qualitatively the form that optimal intervention takes under a variety of assumptions about the number of firms, their conjectures about the response of their rivals to their actions, the substitutability of their productsand the markets in which they are sold. We find that when no domestic consumption occurs optimal policy under duopoly with a single home firm depends on the difference between firms' actual responses to their rivals and the response that their rivals' conjecture. If conjectures are consistent , free trade is optimal. A tax or subsidy is indicated depending on the sign of the difference between the conjectured and the actual reponse.With more than one home firm but still no domestic consumption, an export tax is indicated if conjectures are consistent. Production subsidies and export tax-cum-subsidies can raise national welfare in the presence of domestic consumption, because these policies can mitigate the extent of the consumption distortion implicit in the deviation of price from marginal cost.

We introduce firm and worker heterogeneity into a model of innovation†driven endogenous growth. Individuals who differ in ability sort into either a research activity or a manufacturing sector. Research projects generate new varieties of a differentiated product. Projects differ in quality and the resulting technologies differ in productivity. In both sectors, there is a complementarity between firm quality and worker ability. We study the co†determination of growth and income inequality in both the closed and open economy, as well as the spillover effects of policy in one country to outcomes in others.

How does globalization affect economic growth? We discuss mechanisms that link international integration to the incentives for knowledge accumulation and the efficacy of that process. First, integration facilitates the flow of knowledge across national borders. Second, integration affords innovators a larger potential market even as it subjects them to additional competition from foreign rivals. Third, integration encourages specialization according to comparative advantage. Finally, integration affects the incentives for technological diffusion. Taken together, the literature offers many theoretical insights. Some progress has also been made on the empirical side, although data and methodological impediments have left assessment and measurement lagging behind.

We develop a competitive model of trade between countries with similar aggregate factor endowments. The trade pattern reflects differences in the distribution of talent across the labor forces of the two countries. The country with a relatively homogeneous population exports the good produced by a technology with complementarities between tasks. The country with a more diverse workforce exports the good for which individual success is more important. Imperfect observability of talent strengthens the forces of comparative advantage. Finally, we examine the effects of trade on income distribution and the composition of firms in each industry. (JEL F11, D51)

Endorsements are a simple language for communication between interest-group leaders and group members. The members, who share policy concerns, may not perfectly understand where their interests lie on certain issues. If their leaders cannot fully explain the issues, they can convey some information by endorsing a candidate or party. When interest groups endorse legislative contenders, the candidates may compete for backing. Policies may favor special interests at the expense of the general public. We examine the conditions under which parties compete for endorsements, the extent to which policy outcomes are skewed, and the normative properties of the political equilibria. (JEL D72)

Suppose that an opportunity arises for two countries to negotiate a free-trade agreement (FTA). Will an FTA between these countries be politically viable? And if so, what form will it take? We address these questions using a political-economy framework that emphasizes the interaction between industry special-interest groups and an incumbent government. We describe the economic conditions necessary for an FTA to be an equilibrium outcome, both for the case when the agreement must cover all bilateral trade and for the case when a few politically sensitive sectors can be excluded from the agreement.

We develop a model in which special-interest groups make political contributions in order to influence an incumbent government's choice of trade policy. The interest groups bid for protection with their campaign support. Politicians maximize their own welfare, which depends on total contributions collected and on the welfare of voters. We study the structure of protection that emerges in the political equilibrium and the contributions by different lobbies that support the policy outcome. We also discuss why the lobbies may in some cases prefer to have the government use trade policy to transfer income, rather than more efficient means.

We construct a dynamic, two-country model of trade and growth in which endogenous technological progress results from the profit-maximizing behavior of entrepreneurs. We study the role that the external trading environment and that trade and industrial policies play in the determination of long-run growth rates. Cross-country differences in efficiency at R&D versus manufacturing (i.e., comparative advantage) bear importantly on the growth effects of economic structure and commercial policies.