Leahy, D. and Neary, J. P.
(1997)
R&D spillovers and the case for industrial policy in an open economy.
CEPDP (345).
London School of Economics and Political Science. Centre for Economic Performance, London, UK.
ISBN 0853284377
Abstract
In this paper we consider the case for subsidies towards firms which generate R&D spillovers in open economies. We show that many expected results are overturned in the presence of strategic behaviour by firms. Local R&D spillovers to other domestic firms may justify an R&D tax rather than a subsidy; R&D cooperation by local firms over-internalises the externality and also justifies an R&D tax; and international spillovers which benefit foreign firms may justify a subsidy, even though the government cares only about the profits of home firms.
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