DP5980 Beyond Trade Costs: Firms' Endogenous Access to International Markets

Author(s): Armando José Garcia Pires
Publication Date: December 2006
Keyword(s): commitment power, endogenous asymmetric firms, market access, R&D investment
JEL(s): F12, L13, L25, O31
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5980

Contrary to what has been standard in the international trade literature, we argue that firms' access to international markets should not be just reduced to exogenous factors such as trade costs. Instead, we defend that market access can also be endogenous, since firms can affect international trade patterns by acting strategically against rivals. In particular, we endogenize firms' competitiveness through commitment power advantages of R&D. In this setting we show that: (1) higher efficiency of R&D (like low trade costs) makes trade more easy (given that R&D increases the profitability of exports); (2) firms with higher commitment power in R&D are more competitive (since they have larger incentives to innovate) and as a result these firms also have better access to export markets.