The quality-cost choice of R&D in the nations’ exports

Abstract

Is R&D primarily directed at quality improvement or cost reduction? We use UN-Comtrade data on manufactured goods exports by 19 OECD countries in order to assess this conjecture from the endogenous growth literature. We find that, in export market competition, the demand for high-tech goods – i.e., R&D intensive goods – is less sensitive to price than the demand for low-tech goods. We also estimate exporters’ quality levels in each market and find that high-tech goods have more quality, as well as their demands is the most sensitive to quality.