Closing the Technology Gap Under Protection

Abstract

This paper explores the linkage between protection and the speed with which a protected firm adopts new technology. Of primary importance here is the distinction between permanent and temporary protection on the one hand, and between tariffs and quotas on the other. The authors find that a permanent tariff speeds up adoption but a permanent quota delays adoption unless the quota is highly restrictive. However, temporary protection (i.e., protection that remains effective until the firm adopts new technology) always delays the timing of technology adoption. Copyright 1995 by American Economic Association.