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Endogenous sunk costs, flexible manufacturing and the productivity effects of international trade

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  • Eckel, Carsten

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.

Suggested Citation

  • Eckel, Carsten, 2009. "Endogenous sunk costs, flexible manufacturing and the productivity effects of international trade," Munich Reprints in Economics 20532, University of Munich, Department of Economics.
  • Handle: RePEc:lmu:muenar:20532
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    Cited by:

    1. 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.
    2. repec:eee:eecrev:v:94:y:2017:i:c:p:71-89 is not listed on IDEAS
    3. Inga Heiland & Wilhelm Kohler, 2013. "Heterogeneous Workers, Trade, and Migration," CESifo Working Paper Series 4387, CESifo Group Munich.
    4. Mundaca, Gabriela, 2015. "Multi-product firms, exports and exchange rate policies. Evidence from an emerging economy," MPRA Paper 65751, University Library of Munich, Germany.
    5. 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.
    6. Eckel, Carsten & Irlacher, Michael, 2017. "Multi-product offshoring," European Economic Review, Elsevier, vol. 94(C), pages 71-89.

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