American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Innovation and Production in the Global Economy
American Economic Review
vol. 108,
no. 8, August 2018
(pp. 2128–73)
Abstract
We develop a quantifiable general equilibrium model of trade and multinational production (MP) in which countries can specialize in innovation or production. Home market effects or comparative advantage leads some countries to specialize in innovation and relegate manufacturing operations to other countries via outward MP. Counterfactual analysis reveals that the reduction in the cost of MP or the integration of China into the world economy may hurt countries that are driven to specialize in production, although these losses tend to be very small. Contrary to popular fears, production workers gain even in countries that further specialize in innovation.Citation
Arkolakis, Costas, Natalia Ramondo, Andrés Rodríguez-Clare, and Stephen Yeaple. 2018. "Innovation and Production in the Global Economy." American Economic Review, 108 (8): 2128–73. DOI: 10.1257/aer.20141743Additional Materials
JEL Classification
- D58 Computable and Other Applied General Equilibrium Models
- F12 Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- F14 Empirical Studies of Trade
- F23 Multinational Firms; International Business
- L60 Industry Studies: Manufacturing: General
- O31 Innovation and Invention: Processes and Incentives