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

Ekholm, Karolina; Hakkala, Katariina

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

43 Pages Posted: 25 Nov 2003

See all articles by Karolina Ekholm

Karolina Ekholm

Stockholm School of Economics - Department of Economics; Centre for Economic Policy Research (CEPR); Center for Business and Policy Studies (SNS); CESifo (Center for Economic Studies and Ifo Institute)

Katariina Hakkala

Research Institute of Industrial Economics (IFN)

Date Written: October 2003

Abstract

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.

Keywords: Monopolistic competition, R&D, high-tech production, agglomeration economies

Keywords: Monopolistic competition, R&D, high-tech production, agglomeration economies

JEL Classification: F12, F23

Suggested Citation: Suggested Citation

Ekholm, Karolina and Hakkala, Katariina, Location of R&D and High-Tech Production by Vertically-Integrated Multinationals (October 2003). Available at SSRN: https://ssrn.com/abstract=472821