International R&D Networks

This paper considers the <link rid="b7">Goyal and Moraga-Gonzalez (2001) model of strategic R&D collaboration networks in the open economy framework. The R&D is the <link rid="b2">d'Aspremont and Jacquemin (1988) process innovation and collaboration takes the form of research joint ventures (RJV) in which firms cooperate in R&D but compete in product markets. Countries decide whether to establish free-trade links while firms decide whether and with whom to form RJVs. A double-layer pairwise stability concept is introduced to characterize equilibrium network structures. In contrast with conventional wisdom, it is shown that global free trade generally reduces collaborative R&D levels. We give conditions for which pairwise stable R&D networks are welfare maximizing. Stability and efficiency are congruent when R&D cost is either too high or too low. A large public spillover effect is detrimental to an R&D network when trade networks are regional.