Working Paper: NBER ID: w2540
Authors: Gene M. Grossman; Elhanan Helpman
Abstract: We develop a multi-country, dynamic general equilibrium model of product innovation and international trade to study the creation of comparative advantage through research and development and the evolution of world trade over tune. In our model, firms must incur resource costs to introduce new products and forward-looking potential producers conduct R&D and enter the product market whenever profit opportunities exist Trade has both intra- industry and inter-industry components, and the different incentives that face agents in different countries for investment and savings decisions give rise to Intertemporal trade. We derive results on the dynamics of trade patterns and trade volume, and on the temporal emergence of multinational corporations
Keywords: International Trade; Product Development; Comparative Advantage
JEL Codes: F1; O3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| R&D activities (O32) | creation of comparative advantage (F11) |
| R&D investment (O32) | emergence of new products in the market (D40) |
| varying incentives for investment and savings decisions across countries (F21) | dynamics of trade patterns (F14) |
| dynamics of trade patterns (F14) | different trade volumes and patterns over time (F10) |
| dynamics of trade patterns (F14) | emergence of multinational corporations (F23) |
| changes in factor endowments and resource allocation (F16) | separation of headquarters from production activities (L23) |