DP15369 The Dynamic Impact of Exporting on Firm R&D Investment

Author(s): Florin Maican, Matilda Orth, Mark J Roberts, Van Anh Vuong
Publication Date: October 2020
Keyword(s): export, Innovation, productivity, R&D, Trade
JEL(s): F13, L13, L6, O3
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15369

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.