Together at Last: The Endogenous Formation of Free Trade Agreements and International R&D Networks

Tran, Tat Thanh and Zikos, Vasileios (2014): Together at Last: The Endogenous Formation of Free Trade Agreements and International R&D Networks.

Abstract

We study how free trade agreements between countries and international R&D networks between firms emerge endogenously. The government of each country can initiate bilateral free trade agreements to abolish the import tariffs of other countries. Firms can decide whether and with whom to form R&D collaborations. We build a new model of double-layer networks where the network of free trade agreements is formed in the first layer, and the R&D network is formed in the second layer. Consistently with the stylized facts, we find that free trade agreements can promote international R&D collaboration between firms. Private incentives to form free trade agreements are aligned with societal ones. For R&D networks, by contrast, we identify a conflict between private and social incentives.

• Item Type: MPRA Paper
• Language: English
• Keywords: Free trade agreements, R&D collaboration, tariffs, innovation.
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D85 - Network Formation and Analysis: Theory; F - International Economics > F1 - Trade > F10 - General; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L20 - General; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O31 - Innovation and Invention: Processes and Incentives

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