Beyond trade costs : firms' endogenous access to international markets

Abstract

In this paper we argue that the level of access to international markets by firms is related not only to exogenous factors such as trade costs, but also to endogenous factors such as strategic competition on R&D. In particular, we show that: (1) higher efficiency of R&D (like low trade costs) makes trade easier for firms (given that R&D increases the profitability of exports); (2) firms with a first-mover advantage in R&D have higher competitiveness levels, and as a result they also have better access to export markets; and (3) the volume of trade is always higher when firms can invest in R&D than when they cannot invest in R&D.