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A Gain From Trade: More Research, Less Obstruction

Staff Report 245 | Published March 1, 1998

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James A. Schmitz, Jr. Senior Research Economist
Thomas J. Holmes Consultant
A Gain From Trade: More Research, Less Obstruction


There is an old wisdom that reductions in tariffs force changes on producers that lead to costless, or nearly so, increases in productivity. We construct a technology-ladder model that captures this wisdom. As in other technology-ladder models, time spent in research helps propel an industry up a technology-ladder. In contrast to the literature, we include another activity that plays a role in determining an industry's position on the technology-ladder: attempts to obstruct the research program of rivals (through regulations, for example). In this world, reductions in tariffs between countries lead producers to spend more time in research and less in obstruction of rivals.