Quantitative restrictions, market power and productivity growth

This paper shows that, when compared to tariffs, quantitative restrictions (QRs) have a negative effect on innovation and productivity growth. First, QRs lead to stagnation in the steady state, in the absence of domestic competition, while tariffs allow for positive steady-state growth. Second, the replacement of a QR by a tariff equivalent leads to an increase in the short run incentives to innovation.