Innovation and Production in the Global Economy
AbstractOne feature of globalization is that countries are increasingly specialized in either innovation or in production. To understand the forces behind this specialization and its welfare consequences, we develop a monopolistic competition model of trade and multinational production (MP) in which firms face a tradeoff between producing close to customers and producing in the least-cost location. At the country level, the location of innovation and production is determined by comparative advantage and home market effects that arise from the interaction of trade and MP costs with increasing returns to scale. The model yields simple structural expressions for bilateral trade and MP that we use to calibrate the model across a set of OECD countries. Our counterfactual exercises shed light on the effect of falling MP costs, and the entry of China into world markets, on welfare between and within countries.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18972.
Date of creation: Apr 2013
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Find related papers by JEL classification:
- F1 - International Economics - - Trade
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- F6 - International Economics - - Economic Impacts of Globalization
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-04-27 (All new papers)
- NEP-INO-2013-04-27 (Innovation)
- NEP-KNM-2013-04-27 (Knowledge Management & Knowledge Economy)
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- Sasan Bakhtiari & Antonio Minniti & Alireza Naghavi, 2013.
"Multiproduct Multinationals and the Quality of Innovation,"
2013.69, Fondazione Eni Enrico Mattei.
- S. Bakhtiari & A. Minniti & A. Naghavi, 2013. "Multiproduct Multinationals and the Quality of Innovation," Working Papers wp879, Dipartimento Scienze Economiche, Universita' di Bologna.
- Gabriel J. Felbermayr & Gilbert Spiegel, 2012. "A Simple Theory of Trade, Finance, and Firm Dynamics," CESifo Working Paper Series 3873, CESifo Group Munich.
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