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Innovation and Production Offshoring: Implications on Welfare

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  • Nuttapon Photchanaprasert
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    Abstract

    I 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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    File URL: http://gcoe.ier.hit-u.ac.jp/research/discussion/2008/pdf/gd10-185.pdf
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    Bibliographic Info

    Paper provided by Institute of Economic Research, Hitotsubashi University in its series Global COE Hi-Stat Discussion Paper Series with number gd10-185.

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    Date of creation: Mar 2011
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    Handle: RePEc:hst:ghsdps:gd10-185

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    Keywords: offshoring; innovation; information leakage; productivity gap; welfare; trade policies;

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    1. Diego Puga & Daniel Trefler, 2009. "Wake up and smell the ginseng: International trade and the rise of incremental innovation in low-wage countries," Working Papers 2009-01, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales.
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    8. Lee Branstetter & Raymond Fisman & C. Fritz Foley & Kamal Saggi, 2007. "Intellectual Property Rights, Imitation, and Foreign Direct Investment: Theory and Evidence," NBER Working Papers 13033, National Bureau of Economic Research, Inc.
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    12. Naghavi, Alireza & Ottaviano, Gianmarco Ireo Paolo, 2006. "Outsourcing, Contracts and Innovation Networks," CEPR Discussion Papers 5681, C.E.P.R. Discussion Papers.
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