Working Papers in Economics,
University of Gothenburg, Department of Economics

Abstract: 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. Export market profits are a substantial source of the expected return to R&D. R&D spending is found to have a larger impact on firm productivity in the export market than in the domestic market. 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 10 percent tariff on Swedish exports reduces the expected benefits of R&D for the median firm by 18.6 percent and lowers the amount of R&D spending by 7.6 percent in the high-tech industries. The corresponding reductions in the low-tech industries are 20.6 and 5.5 percent, respectively. R&D adjustments in response to export tariffs mainly occur on the intensive, rather than the extensive, margin.

Keywords: R&D; innovation; trade; export; productivity

JEL-codes: F13; L13; L60; O30

Language: English

47 pages, First version: October 2020. Revised: August 2022.

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