Author(s):	Karolina Ekholm, Katariina Hakkala
Publication Date:	October 2003
Keyword(s):	agglomeration economies, high-tech production, monopolistic competition, R&D
JEL(s):	F12, F23
Programme Areas:	International Trade and Regional Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=4078

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.