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The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 538:
Location of R&D and High-Tech Production by Vertically Integrated Multinationals

Karolina Ekholm () and Katariina Hakkala ()

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; (follow links to similar papers)

JEL-Codes: F12; F23; (follow links to similar papers)

41 pages, October 7, 2003

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