Working Paper Series
Location of R&D and High-Tech Production by Vertically Integrated Multinationals
() and Katariina Hakkala
Abstract: This paper presents evidence that, in Europe, production
of high-tech goods is attracted to large markets, while R&D activities tend
to be located away from them. In order to explain this phenomenon, 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 a home-market effect creating
incentives for firms to locate production in the relatively large market.
We show that, for relatively weak R&D spillovers and intermediate trade
costs, the smaller economy tends to specialize in R&D. We also discuss the
welfare consequences of different outcomes with respect to the location of
R&D, showing that while skilled labor may gain from hosting an
agglomeration of R&D activities, unskilled labor will lose.
Keywords: Monopolistic Competition; R&D; High-Tech Production; Agglomeration Economies; (follow links to similar papers)
JEL-Codes: F12; F23; (follow links to similar papers)
48 pages, April 26, 2004
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