TY  - JOUR
AU  - Grossman,Gene M.
TI  - Explaining Japan's Innovation and Trade:  A model of Quality Competition and Dynamic Comparive Advantage
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3194
PY  - 1989
Y2  - December 1989
UR  - http://www.nber.org/papers/w3194
L1  - http://www.nber.org/papers/w3194.pdf
N1  - Author contact info:
Gene M. Grossman
International Economics Section
Department of Economics
Princeton University
Princeton, NJ 08544
Tel: 609/258-4823
Fax: 609/258-1374
E-Mail: grossman@princeton.edu
AB  - 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. 
ER  -