Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

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

Karolina Ekholm () and Katariina Hakkala ()
Additional contact information
Karolina Ekholm: Dept. of Economics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden
Katariina Hakkala: Dept. of Economics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden

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

JEL-codes: F12; F23

41 pages, October 7, 2003

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