Innovation and Production in the Global Economy
Costas Arkolakis, Natalia Ramondo, Andrés Rodríguez-Clare, Stephen Yeaple
American Economic Review · 2018 · Volume 108 · Issue 8
Abstract
We develop a quantifiable general equilibrium model of trade and multinational production (MP) in which countries can specialize in innovation or production. Home market effects or comparative advantage leads some countries to specialize in innovation and relegate manufacturing operations to other countries via outward MP. Counterfactual analysis reveals 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, although these losses tend to be very small. Contrary to popular fears, production workers gain even in countries that further specialize in innovation.
Keywords
Computable and Other Applied General Equilibrium Models, Models of Trade with Imperfect Competition and Scale Economies, Fragmentation, Empirical Studies of Trade, Multinational Firms, International Business, Industry Studies: Manufacturing: General, Innovation and Invention: Processes and Incentives
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