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Endogenous Free Trade Agreements and International R&D Networks
Author(s) -
Tran Tat Thanh,
Zikos Vasileios
Publication year - 2018
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/manc.12212
Subject(s) - economics , international trade , order (exchange) , free trade , outcome (game theory) , international economics , microeconomics , network formation , contrast (vision) , computer science , finance , artificial intelligence , world wide web
In this paper, we develop a network formation game in order to study how free trade agreements among countries and R&D networks among firms emerge in equilibrium. Prior research showed that free trade agreements discourage the formation of international R&D networks under the assumption that trade tariffs are exogenous. In contrast, we allow for endogenous trade tariffs, and show that free trade agreements promote R&D collaboration between firms. In terms of efficiency, we find that although countries can achieve an outcome that is socially desirable, the number of R&D collaborations between firms is likely to be excessive from a social viewpoint.