Investments in R&D in Monopolistic Competitive Trade Model
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We study a monopolistic competition model in the open economy case. The utility of consumers are additive separable. The producers can choose technology (R&D) endogenously. We examine the local comparative statics of market equilibrium with respect to trade costs (of iceberg type). Our main finding is the following: increasing trade costs has opposite impacts on mass of firms and productivity. Moreover, we study the cases of small trade costs and symmetric (on numbers of consumers) countries.
KeywordsDixit-Stiglitz-Krugman model Market equilibrium Endogenous choice of technology Comparative statics
The study was carried out within the framework of the state contract of the Sobolev Institute of Mathematics (project no. 0314-2019-0018). The work was supported in part by the Russian Foundation for Basic Research (projects no. 18-010-00728 and no. 19-010-00910) and by the Russian Ministry of Science and Education under the 5-100 Excellence Programme.
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