Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1366: The Dynamic Impact of Exporting on Firm R&D Investment

Florin Maican (), Matilda Orth (), Mark J. Roberts () and Van Anh Vuong ()
Additional contact information
Florin Maican: University of Gothenburg, Postal: Research Institute of Industrial Economics (IFN), and Center for Economic Policy Research (CEPR)
Matilda Orth: Research Institute of Industrial Economics (IFN), Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
Mark J. Roberts: Pennsylvania State University, Postal: and NBER
Van Anh Vuong: Maastricht University

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. 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.

Keywords: R&D; Innovation; Trade policy; Productivity

JEL-codes: F13; L13; L60; O30

45 pages, October 13, 2020

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