Lecture 13 - Trade Policy and Tech Adoption Flashcards
(16 cards)
According to the source, what stands at the heart of economic policy, and what is its relation to economic growth?
Intellectual property (IP) stands at the heart of economic policy. Innovation, which is linked to IP, is the source of economic growth
What is the difference between drastic (or major) and nondrastic (or minor) process innovation?
A drastic innovation allows the innovator to behave as a monopolist without being constrained by price competition.
A nondrastic innovation provides a cost advantage, but the innovator is still constrained by competition.
Besides infant industry tariffs, what other forms of industrial policy did Singapore use?
Singapore used tax incentives (like ‘pioneer status’ tax exemption), forced savings (Central Provident Fund for development), directed credit (cheap loans via Development Bank of Singapore), and incentives for FDI (tax holidays, help with training, cheap real-estate).
What type of market structure is the model of infant industry protection focusing on technology adoption set up under?
The model is set up under oligopolistic markets, specifically a quantity-setting game between a domestic firm and a foreign firm.
In the oligopoly model, what is the assumption about the cost of technology adoption over time?
The one-time fixed cost of adoption, k(t), declines over time.
In the oligopoly model, how does technology adoption (moving from old to new technology) affect the domestic firm’s equilibrium momentary profits?
The domestic firm’s equilibrium momentary profits are increasing in technological efficiency.
In the oligopoly model, what condition determines the optimal date for the home firm to adopt the new technology?
The firm chooses the date t that equates the marginal value of earlier adoption (the additional momentary profit p - p) against the marginal opportunity cost of earlier adoption (rk(t) - k’(t)).
Under what condition is the marginal increase in domestic profits from adopting the new technology higher under a tariff?
This is true if ∂²p(q, t) / ∂q∂t > 0.
This means the domestic firm gains more from a cost reduction when the foreign firm’s costs are higher (due to the tariff).
What was the technological situation in the US steel industry in the 1960s and 1980s compared to European and Japanese firms?
In the 1960s, US firms mainly used open hearth furnaces while European and Japanese firms adopted the newer basic oxygen furnaces.
In the 1980s, a similar pattern repeated with continuous casting technology.
What was the outcome for Harley-Davidson after the 1983 tariff?
By 1986, Harley-Davidson had closed the technology gap and reclaimed its leading position in the US market
By 1986, Harley-Davidson had closed the technology gap and reclaimed its leading position in the US market
To allow Harley-Davidson to introduce “innovative new management and manufacturing techniques” learned from Japanese competitors
In the technology adoption race model, if one firm (home or foreign non-adopter) adopts at time t, what happens for the other firm?
The other firm can profitably adopt at a later date when the fixed cost has declined substantially.
This leads to a diffusion in adoption dates, with one being the leader and the other the laggard.
According to the Crowley (2006) model, how can the home country’s government induce earlier adoption by the home firm and guarantee it wins the technology adoption race against the foreign non-adopter?
Through the use of a comprehensive safeguard tariff against imports from both foreign rivals (the innovator and the non-adopter).
This increases the costs of both rivals. This seems to fit the Harley Davidson experience.
What does the Crowley (2006) model suggest about the effectiveness of trade policy in inducing technology adoption based on the case studies?
The effectiveness is highly sensitive to the country-breadth of trade protection.
Selective tariffs may not be as effective as broad, comprehensive measures. This seems to align with the US steel experience
How did the Napoleonic Blockade affect technology adoption in France, according to Juhasz (2018)?
The blockade of Continental ports created an incentive for the installation of more cotton spinning capacity in France, as the UK was technologically ahead circa 1800.
