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Location of R&D and High-Tech Production by Vertically-Integrated Multinationals

  • Ekholm, Karolina
  • Hakkala, Katariina

We develop a two-country general equilibrium model where firms make separate choices about the location of R&D and high-tech production. There are two agglomeration forces: R&D spillovers and backward linkages associated with high-tech production. The latter tends to attract production to the larger economy. We show that, for relatively weak R&D spillovers and intermediate trade costs, the smaller economy tends to specialize in R&D. For certain parameterizations, both concentration and dispersion of R&D activities are possible outcomes. Hosting an agglomeration of R&D activities does not necessarily lead to welfare gains.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4078.

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Date of creation: Oct 2003
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Handle: RePEc:cpr:ceprdp:4078
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