A peer-reviewed academic journal on economics has published an article co-authored by Pavlo Buryi, assistant professor of economics at Harrisburg University of Science and Technology.
The article titled “Research and development and trade policies for product innovation in the presence of foreign competition”, is jointly written with Sajal Lahiri from Southern Illinois University, and is currently in press in Economic Modelling. The journal is published by Elsevier and has an “A” rating.
The paper examines two policy instruments — a matching grant and import tariffs — for encouraging research and development (R&D) in product innovation by a domestic firm when it faces foreign competition. The researchers did so by developing a theoretical model of product innovation where R&D effort is endogenous and its outcome uncertain. They examine the effects of a reduction in import tariffs on private expenditure on R&D, on public support for such R&D, and on total R&D expenditure.
They found that in response to a reduction in import tariffs, the domestic firm always reduces its private R&D investments, but the total level of R&D expenditure (i.e., including public support) might go up depending on the level of tariffs. In particular, the researchers note that it will go up if the initial level of tariff is higher than a critical level. When tariff is endogenous, they found that the socially optimal level of tariffs is positive. One finding that is of particular interest is that supporting private attempts to product innovate in the form of a matching grant program leads to a socially optimal level of product R&D.
