Import protection as export promotion in oligopolistic markets with R & D

Abstract

Can import protection ever act as export promotion? One reason that this is an important question is that it has often been argued that import protection is an explanation of Japanese export success since the war. Yamamura (1986) for instance regards it as an essential part of Japanese policy during its "rapid growth phase". He argues that: "As the firms expanded, the protected markets, which had served as hot houses for the fledgling industries, became export platforms easing the risks of aggressive expansion into export markets." The idea that import protection is export promotion has been formalised by Krugman (1984) in a number of partial equilibrium non-cooperative oligopolistic trade models. The purpose of what follows is to re-examine the issue in a formal two-stage game framework in which firms choose R & D levels in the first stage and outputs in the second.