Trade Team

Produced by the Research Support Team The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent. Policy ReseaRch WoRking PaPeR 4319 A model of firm innovation illustrates the effects of the threat of imitation and product varieties on a representative firm’s decision to invest in research and development to produce new product varieties. The model motivates two empirical questions: (1) Is research and development partially correlated with firms ’ propensity to introduce new products or product innovation in developing countries? (2) Do trade policies and the national investment climate affect firms’ propensity for product innovation? The econometric This paper—a product of the Office of the Chief Economist for Latin America/Caribbean—is part of a larger effort in the department to understand the microeconomic determinants of economic growth. Policy Research Working Papers are also posted on the Web a