In an oligopoly trade model where firms engage in R&D, international differences in market size allow for the emergence of endogenous asymmetries between firms. Concretely, firms located in countries with more demand become more competitive because they have strong incentives to perform R&D ('home market' and 'competitiveness effects' in R&D). As a consequence, these firms have better access to export markets and the countries where they are hosted often also tend to run trade surplus in the oligopolist sector. This shows that cross-border differences at the level of R&D intensity can be a basis for international specialization.
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Head, Keith & Mayer, Thierry & Ries, John, 2002.
"On the Pervasiveness of Home Market Effects,"
Economica,
London School of Economics and Political Science, vol. 69(275), pages 371-90, August.
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Other versions:
Grossman, Gene M. & Helpman, Elhanan, 1995.
"Technology and trade,"
Handbook of International Economics,
in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 25, pages 1279-1337
Elsevier.
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Other versions:
Gene M. Grossman & Elhanan Helpman, 1994.
"Technology and Trade,"
NBER Working Papers
4926, National Bureau of Economic Research, Inc.
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