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Winners and losers from trade? Product and process innovation in a 3×3 model

Author

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  • Franziska Tinnefeld

    (Università Cattolica del Sacro Cuore and Fondazione Eni Enrico Mattei)

  • Florian Wagener

    (Universiteit van Amsterdam)

Abstract

We develop a multi-region, multi-sector Romer-type dynamic partial equilibrium model of endogenous growth. We calibrate on equally sized regions North, East, and South, based on data from Germany, Poland, and China. We compare the effect of trade block formation on innovation outcomes. Integration leads to aggregate increase in both product and process innovation, resulting in aggregate welfare gains. These are concentrated in North: the research sectors of East and South collapse. Our findings explain data from eastern European countries, as well as current R&D policies in China that are designed to avoid downstream lock-in.

Suggested Citation

  • Franziska Tinnefeld & Florian Wagener, 2026. "Winners and losers from trade? Product and process innovation in a 3×3 model," Working Papers 2026.20, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:2026.20
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