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Endogenous Sunk Costs, Flexible Manufacturing and the Productivity Effects of International Trade

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  • Carsten Eckel

Abstract

The paper addresses the productivity effects of international trade in the presence of flexible manufacturing and endogenous sunk costs (cost‐reducing R&D). It shows that international trade raises R&D expenditures, but this will not necessarily boost productivity because of possibly counteracting market structure effects. The analysis is conducted in general equilibrium so that implications for real wages and welfare can also be addressed. Both can fall when trade leads to excessive R&D investment.

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  • Carsten Eckel, 2009. "Endogenous Sunk Costs, Flexible Manufacturing and the Productivity Effects of International Trade," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(2), pages 369-386, June.
    • Handle: RePEc:bla:scandj:v:111:y:2009:i:2:p:369-386
    DOI: 10.1111/j.1467-9442.2009.01568.x
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    3. Lorz Oliver & Wrede Matthias, 2009. "Trade and Variety in a Model of Endogenous Product Differentiation," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(1), pages 1-14, November.
    4. Inga Heiland, 2017. "Five Essays on International Trade, Factor Flows and the Gains from Globalization," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 74.
    5. Eckel, Carsten & Irlacher, Michael, 2017. "Multi-product offshoring," European Economic Review, Elsevier, vol. 94(C), pages 71-89.
    6. Heiland, Inga & Kohler, Wilhelm, 2022. "Heterogeneous workers, trade, and migration," European Economic Review, Elsevier, vol. 144(C).
    7. Mundaca, Gabriela, 2015. "Multi-product firms, exports and exchange rate policies. Evidence from an emerging economy," MPRA Paper 65751, University Library of Munich, Germany.
    8. Hartmut Egger & Michael Koch, 2012. "Labour unions and multi-product firms in closed and open economies," Canadian Journal of Economics, Canadian Economics Association, vol. 45(4), pages 1456-1479, November.
    9. Weller, Christian & Kleer, Robin & Piller, Frank T., 2015. "Economic implications of 3D printing: Market structure models in light of additive manufacturing revisited," International Journal of Production Economics, Elsevier, vol. 164(C), pages 43-56.
    10. Koch, Michael & Egger, Hartmut, 2013. "Trade and the Firm-Internal Allocation of Workers to Tasks," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79841, Verein für Socialpolitik / German Economic Association.
    11. Chunming Zhao & Qun Zhang, 2016. "Input Trade Liberalization and Export Product Scope: Evidence from China," Business and Economic Research, Macrothink Institute, vol. 6(2), pages 118-132, December.

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