Analysis On Strategic R&D Subsidy And Implement Method

After China's entry into WTO, we have to abolish traditional protective policies on trade, such as high tariff, subsidies and quantitative restrictions. But on the other hand, many of China's strategic industries still lack of competitive strength, which meansprotection is still necessary. Under this circumstance, protection faces two problems: one is what policy tool is allowed; the other is how to implement the chosen policy. This paper mainly tries to find out answers to these two questions.As technology improvement becomes more and more important in today's global competition, governments choose to subsidize firms' R&D. Besides, R&D subsidy is allowed by WTO because it will neither cause distortion nor hinder free trade. Economists begin to set eyes on R&D subsidy because of its feasibility. This paper applies calibration model and adjusted R&D subsidy model to China's car industry, analyzing the effect of R&D subsidy and export subsidy respectively. The result suggests that R&D subsidy can generates higher welfare with less cost than export subsidy. This analysis provides answer to the first question.The second step of this paper is to find out a better way to implement the best policy. There are two ways of implementing R&D subsidy: committed regime and non-committed regime. This paper uses timing model and simulation-data method to make a comparison between these two regimes. The result suggests that the non-committed regime will induce higher level of welfare and avoid rent seeking. This analysis provides answer to the second question.After all these analyses, we make policy suggestions accordingly. First of all, our government should choose to support industries with obvious economy of scales and technology spillovers. Especially we should subsidize the R&D in agriculture industry. Secondly, government should choose the suitable policy, such as functional industry policy. Last but not the least, government should choose a right way to implement the chosen policy. Committed regime and non-committed regime should be carefully considered according to the reality.