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Innovation and Production in the Global Economy

Listed author(s):
  • Natalia Ramondo

    (UCSD)

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    The decline in the costs of multinational production (MP) has led some countries to specialize in innovation and others to specialize in production. To study the aggregate and distributional implications of this phenomenon, we develop a quantifiable general equilibrium model of trade andMP. Specialization is endogenously determined as a result of comparative advantage and home market effects (HME) that arise from the interaction between increasing returns to innovation and geographical frictions. The model yields simple structural expressions for bilateral trade and MP that we use to calibrate it across a set of OECD countries. Comparative statics exercises reveal that the reduction in the cost of MP or the integration of China into the world economy may hurt countries that are driven to specialize in production due to HMEs, although these losses tend to be very small. Contrary to popular fears, we find that production workers gain even in countries that further specialize in innovation.

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    File URL: https://economicdynamics.org/meetpapers/2015/paper_183.pdf
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    Paper provided by Society for Economic Dynamics in its series 2015 Meeting Papers with number 183.

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    Date of creation: 2015
    Handle: RePEc:red:sed015:183
    Contact details of provider: Postal:
    Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

    Web page: http://www.EconomicDynamics.org/
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