Working Paper: CEPR ID: DP4078
Authors: Karolina Ekholm; 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: agglomeration economies; high-tech production; monopolistic competition; R&D
JEL Codes: F12; F23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| R&D spillovers (O36) | specialization in R&D (O32) |
| backward linkages (L14) | specialization in R&D (O32) |
| R&D spillovers and trade costs (F12) | specialization in R&D (O32) |
| concentration of R&D activities (O32) | welfare outcomes (I38) |
| relative return to skilled labor (J24) | location decision of R&D (R32) |