@techreport{NBERw3194,
 title = "Explaining Japan's Innovation and Trade:  A model of Quality Competition and Dynamic Comparive Advantage",
 author = "Gene M. Grossman",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "3194",
 year = "1989",
 month = "December",
 URL = "http://www.nber.org/papers/w3194",
 abstract = {In this paper, I develop a model of dynamic comparative advantage based on endogenous innovation. Firms in each of two countries devote resources to R&D in order to improve the quality of high-technology products. Research successes generate profit opportunities in the world market. The model predicts that a country such as Japan, with abundance of skilled labor and scarcity of natural resources, will specialize relatively in industrial innovation and in the production of high-technology goods. Data are provided to support this prediction. I use the model to explore the effects of R&D subsidies, production subsidies and trade policies on the long-run rates of innovation in trade partner countries and on the long-run pattern of trade. },
}