Dynamics of export competition in high-technology trade: usa, japan, and germany 1973-1987

Abstract

This article is a contribution to the line of research established by Audretsch (1988 and 1989). It seeks to identify competitive interactions in R&D behavior, relative prices and wages, and effective exchange rates to account for changes in world market shares of the three major exporters of high-technology products. The theoretical models used to gain empirical estimates were a general equilibrium (GE)-type Cournot-Nash international oligopoly and a vector autoregressive (VAR) model, respectively. The GE rivalry model of imperfect competition appeared to have well explained the variance in market share in four out of five three-digit SITC high-technology commodity groups; however, the descriptive power of the model weakened substantially once allowing for nonconventional exchange rate and relative wage effects. From the forecast error decomposition of the VAR model three important results have emerged. First, in many commodity groups examined, the forecast error of the market share variable can be improved if the innovation variables (relative prices, market share, R&D efforts, and effective exchange rates) are accounted for. Second, price or output setting behavior is not a priori identifiable and, if so, it is very industry-specific. For some industries (e.g., telecommunication equipment) relative prices appeared exogenous; for others market shares (aircraft). Third, competitiveness in high-technology exports does not necessarily have to mean price competitiveness unless economies of scale and factor prices become dominant elements of pricing. The policy recommendation emerging is that any generalization of Cournot or Bertrand frameworks for empirical purposes is most likely dubious and that the optimal export policy has to be very industry-specific.