Technological rivalry and optimal dynamic policy in an open economy

Bai, Yan, Jin, Keyu ORCID: 0000-0002-0139-799X and Lu, Dan (2025) Technological rivalry and optimal dynamic policy in an open economy. Journal of Political Economy Macroeconomics. 000-000. ISSN 2832-9341

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Abstract

We investigate optimal dynamic policies in an open economy where technology is endogenously accumulated through innovation. Our key insight is that even when private innovation allocations are (Pareto) efficient, a country has incentives to influence foreign innovation efforts across sectors and over time. We derive explicit expressions for optimal taxes linked to both intratemporal and intertemporal motives to manipulate foreign technology. To affect forward-looking innovation decisions in a foreign country, a home government uses committed future trade policies (Ramsey) or innovation policies (Markov); to affect intratemporal prices, the home country imposes higher tariffs in sectors where it has a comparative advantage.

Item Type:	Article
Additional Information:	© 2025 The University of Chicago
Divisions:	Economics
Subjects:	T Technology H Social Sciences > HB Economic Theory J Political Science
Date Deposited:	07 Aug 2025 23:12
Last Modified:	15 Aug 2025 09:42
URI:	http://eprints.lse.ac.uk/id/eprint/129088

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