Endogenous sunk costs, flexible manufacturing and the productivity effects of international trade
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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|Date of creation:||2009|
|Date of revision:|
|Publication status:||Published in Scandinavian Journal of Economics 2 111(2009): pp. 369-386|
|Contact details of provider:|| Postal: Ludwigstr. 28, 80539 Munich, Germany|
Web page: http://www.vwl.uni-muenchen.de
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