The Relationship among Cost-Reducing R&D Investment, Occupational Choice, and Trade


In this paper, I construct a two-country model in which oligopolistic firms export goods and undertake cost-reducing R&D investment. In this model, abilities of individual to become skilled worker are heterogeneous and they choose to become skilled worker or unskilled worker. Individuals have to incur the cost of education in order to become skilled workers. Each country imposes tariffs. When the cost of education is sufficiently high, a decrease in the tariff rate decreases the level of R&D investment. However, when the cost of education is sufficiently small, a decrease in the tariff rate increases the level of R&D investment.

Share and Cite:

Morita, T. (2014) The Relationship among Cost-Reducing R&D Investment, Occupational Choice, and Trade. Theoretical Economics Letters, 4, 875-888. doi: 10.4236/tel.2014.49111.

Conflicts of Interest

The authors declare no conflicts of interest.


[1] Wacziarg, R. and Welch, K.H. (2008) Trade Liberalization and Growth: New Evidence. The World Bank Economic Review, 22, 187-231.
[2] Acemoglu, D. (2002) Technical Change, Inequality, and the Labor Market. Journal of Economic Literature, 40, 7-72.
[3] Sachs, J.D. and Warner, A. (1995) Economic Reform and the Process of Global Integration. Brookings Papers on Economic Activity, 1, 1-95.
[4] Funk, M. (2003) The Effects of Trade on Research and Development. Open Economies Review, 14, 29-42.
[5] Scherer, F.M. and Keun, H. (1992) R&D Reactions to High-Technology Import Competition. Review of Economics and Statistics, 74, 202-212.
[6] Wood, A. (1994) North-South Trade, Employment and Inequality: Changing Fortunes in a Skill Driven World. Clarendon Press, Oxford.
[7] Leamer, E.E. (1996) In Search of Stolper-Samuelson Effects on U.S. Wages. NBER Working Paper No. 5427.
[8] Kurokawa, Y. (2010) Variety-Skill Complementarity: A Simple Resolution of the Trade-Wage Inequality Anomaly. Economic Theory, 46, 297-325.
[9] Braun, S. (2008) Economic Integration, Process and Product Innovation, and Relative Skill Demand. Review of International Economics, 16, 864-873.
[10] Morita, T. (2012) Cost-Reducing R&D Investment, Labor Market, and Trade. Review of International Economics, 20, 821-827.
[11] Haaland, J.I. and Kind, H.J. (2008) R&D Policies, Trade and Process Innovation. Journal of International Economics, 74, 170-187.
[12] Long, N.V., Raff, H. and Stähler, F. (2011) Innovation and Trade with Heterogeneous Firms. Journal of International Economics, 84, 149-159.
[13] Costantini, J.A. and Melitz, M.J. (2008) The Dynamics of Firm-Level Adjustment to Trade Liberalization. The Organization of Firms in a Global Economy, Harvard University Press, Cambridge, 107-141.
[14] Atkeson, A. and Burstein, A. (2010) Innovation, Firm Dynamics, and International Trade. Journal of Political Economy, 118, 433-484.

Copyright © 2023 by authors and Scientific Research Publishing Inc.

Creative Commons License

This work and the related PDF file are licensed under a Creative Commons Attribution 4.0 International License.