Discussion paper

DP4078 Location of R&D and High-Tech Production by Vertically-Integrated Multinationals

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.

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Citation

Ekholm, K and K Hakkala (2003), ‘DP4078 Location of R&D and High-Tech Production by Vertically-Integrated Multinationals‘, CEPR Discussion Paper No. 4078. CEPR Press, Paris & London. https://cepr.org/publications/dp4078