| Summary: | This paper compares adversarial with cooperative industrial and trade policies in a dynamic oligopoly game in which a home and foreign firm compete in R&D; and output and, because of spillovers, each firm benefits from the other's R&D.; When the government can commit to an export subsidy, such a policy raises welfare relative to cooperation, except when R&D; is highly effective and spillovers are near-complete. Without commitment, however, subsidisation may yield welfare levels much lower than cooperation and lower even than free trade, though qualifications to the dangers from no commitment are noted.
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