R&D Policy with Layers of Economic Integration

Domestic R&D policy is examined in the context of four successive layers of international integration: (a) trade in intermediate and final goods, (b) trade in technologies, (c) international R&D spillovers and (d) internationally-coordinated R&D policy. Positive domestic R&D spillovers are assumed throughout. A subsidy improves welfare when there is no trade in technologies or when technologies are traded but R&D policy is internationally coordinated. However, at intermediate degrees of international integration an R&D tax or subsidy might improve welfare. Trade in technologies introduces terms-of-trade effects that increase welfare for net technology importers but reduce it for net exporters