Three essays in strategic trade policy and international agreements

Chapter 1 approaches the strategic trade policy issue from a novel and important perspective. We observe that previous work on R&D subsidization has proceeded under the implicit assumption that inventive firms have perfect intellectual property rights. Because of IPR piracy in some developing countries, inventive firms cannot perfectly appropriate their new technology and cannot perfectly benefit from their governrnent's R&D subsidies. This chapter shows how weak IPR protection enforcement affects government's incentives to subsidize R&D activities as well as firms' incentives for R&D investments. Taking IPR protection enforcement levels over countries as exogenous, this paper computes the optimal R&D subsidy rate and shows that IPR protection enforcement levels determine strategic relationship among firms' R&D activities and externalities of the R&D game.; Chapter 2 extends the first chapter by endogenizing the decision process of IPR policy because the IPR regime is itself a policy choice that may affect firms' incentives to engage in R&D activities. When a government sets both R&D and IPR policies simultaneously, it will choose a sufficiently weak level of IPR protection that its optimal R&D policy choice will be a subsidy. In striking contrast with results of previous works, the case for strategic R&D subsidies is more robust than previously thought. An exporting country has incentives to subsidize R&D activities, no matter whether or not exporting countries cooperate over trade policies. An addition of export policies still leads government to subsidize R&D, implying that the fragility of R&D subsidies shown in previous works disappears in our setup.; Chapter 3 explores the implications of our findings for understanding and interpreting international agreements relating to R&D subsidies and IPR protection. We show that R&D subsidies are required to maintain appropriate incentives for firms to engage in R&D investments. However, the TRIPS Agreement can be understood as representing an inefficient victory of the interest of North countries over the interests of South countries. This result is based on two things: (1) Unawareness or ignorance of the interdependence between R&D subsidies and IPR policy and (2) Exporting countries' cooperation.