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Employment protection, international specialization, and innovation

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  • Saint-Paul, Gilles

Abstract

This paper develops a model to analyse the implications of firing costs on incentives for R&D and international specialization. The key idea is that, to avoid paying firing costs, the country with a rigid labour market will tend to produce relatively secure goods, at late stages in their product life cycles. With international trade, an international product cycle emerges where, roughly, new goods are first produced in the low-firing cost country, and then move to the high-firing cost country. The paper shows that in the closed economy, an increase in firing costs does not necessarily imply a reduction in R&D; it crucially depends on the riskiness of R&D activity relative to productive activity. In the open economy, however, an increase in firing costs is much more likely to reduce R&D intensity.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 46 (2002)
Issue (Month): 2 (February)
Pages: 375-395

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Handle: RePEc:eee:eecrev:v:46:y:2002:i:2:p:375-395

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References

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  1. Aghion, Philippe & Howitt, Peter, 1996. " Research and Development in the Growth Process," Journal of Economic Growth, Springer, vol. 1(1), pages 49-73, March.
  2. Paul M. Romer, 1987. "Crazy Explanations for the Productivity Slowdown," NBER Chapters, in: NBER Macroeconomics Annual 1987, Volume 2, pages 163-210 National Bureau of Economic Research, Inc.
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  8. Cohen, D. & Saint-Paul, G., 1994. "Uneven Technical Progress and Job Destructions," DELTA Working Papers 94-10, DELTA (Ecole normale supérieure).
  9. Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," Working papers 527, Massachusetts Institute of Technology (MIT), Department of Economics.
  10. Saint-Paul, Gilles, 1996. "Are the unemployed unemployable?," European Economic Review, Elsevier, vol. 40(7), pages 1501-1519, August.
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  12. Richard Layard & Stephen Nickell, 1998. "Labour Market Institutions and Economic Performance," CEP Discussion Papers dp0407, Centre for Economic Performance, LSE.
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  16. Saint-Paul, Gilles, 1997. "Is labour rigidity harming Europe's competitiveness? The effect of job protection on the pattern of trade and welfare," European Economic Review, Elsevier, vol. 41(3-5), pages 499-506, April.
  17. C Bean & Christopher A. Pissarides, 1992. "Unemployment, Consumption and Growth," CEP Discussion Papers dp0100, Centre for Economic Performance, LSE.
  18. Saint-Paul, Gilles, 1996. "Unemployment and increasing private returns to human capital," Journal of Public Economics, Elsevier, vol. 61(1), pages 1-20, July.
  19. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  20. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
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