Innovation and Production Offshoring: Implications on Welfare
AbstractI theoretically analyze the effects of a strengthening IPR protection and an improvement of technology of innovation of offshoring on the rate of innovation offshoring, rate of imitation, rate of innovation, relative wages, real wages and domestic welfare. A North-South dynamic general equilibrium model of trade with endogenous imitation and innovation and production offshoring is constructed. To trade with lower Southern wages, Northern firms confront the problem of information leakage to the Southern firms and monitoring costs if they do offshore innovation and production. The model predicts that a strengthening of IPR protection decreases the rate of innovation and the rate of imitation but increases the rate of innovation offshoring. Northern real wages also decrease with a strengthening of IPR protection but Southern real wages increase. It may hurt the North but benefit the South. An improvement in technology of innovation offshoring increases the rate of innovation, the rate of imitation and the rate of innovation offshoring. Northern relative real wages decrease with such improvement but Southern real wages increase. It may benefit the North and the South.
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Bibliographic InfoPaper provided by Institute of Economic Research, Hitotsubashi University in its series Global COE Hi-Stat Discussion Paper Series with number gd10-185.
Date of creation: Mar 2011
Date of revision:
oï¬€shoring; innovation; information leakage; productivity gap; welfare; trade policies;
Find related papers by JEL classification:
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-05-24 (All new papers)
- NEP-DGE-2011-05-24 (Dynamic General Equilibrium)
- NEP-INO-2011-05-24 (Innovation)
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