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

Author

Listed:
  • Ekholm, Karolina

    (Stockholm School of Economics)

  • Hakkala, Katariina

    (The Research Institute of Industrial Economics)

Abstract
This paper presents evidence that, in Europe, production of high-tech goods is attracted to large markets, while R&D activities tend to be located away from them. In order to explain this phenomenon, 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 a home-market effect creating incentives for firms to locate production in the relatively large market. We show that, for relatively weak R&D spillovers and intermediate trade costs, the smaller economy tends to specialize in R&D. We also discuss the welfare consequences of different outcomes with respect to the location of R&D, showing that while skilled labor may gain from hosting an agglomeration of R&D activities, unskilled labor will lose.

Suggested Citation

  • Ekholm, Karolina & Hakkala, Katariina, 2004. "Location of R&D and High-Tech Production by Vertically Integrated Multinationals," Working Paper Series 616, Research Institute of Industrial Economics.
    • Handle: RePEc:hhs:iuiwop:0616
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    Citations

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    Cited by:

    1. Colin Davis & Ken-ichi Hashimoto, 2019. "Innovation Offshoring with Fully Endogenous Growth," ISER Discussion Paper 1055, Institute of Social and Economic Research, Osaka University.
    2. Armando J. Garcia Pires, 2015. "Multinationals, R&D and Endogenous Productivity Asymmetries," International Economic Journal, Taylor & Francis Journals, vol. 29(1), pages 95-119, March.
    3. Patrik Karpaty & Patrik Gustavsson Tingvall, 2015. "Offshoring and Home Country R&D," The World Economy, Wiley Blackwell, vol. 38(4), pages 655-676, April.
    4. Joel Stiebale & Nicole Wößner, 2020. "M&As, Investment and Financing Constraints," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 27(1), pages 49-92, January.
    5. Colombo, Luca & Dawid, Herbert, 2014. "Strategic location choice under dynamic oligopolistic competition and spillovers," Journal of Economic Dynamics and Control, Elsevier, vol. 48(C), pages 288-307.
    6. Zachary Cohle, 2019. "Explaining the Current Innovative R&D Outsourcing to Developing Countries," Journal of Industry, Competition and Trade, Springer, vol. 19(2), pages 211-234, June.
    7. Stiebale, Joel, 2016. "Cross-border M&As and innovative activity of acquiring and target firms," Journal of International Economics, Elsevier, vol. 99(C), pages 1-15.
    8. Roger Bandick & Holger Görg & Patrik Karpaty, 2016. "Foreign Acquisitions, Domestic Multinationals, and R&D," World Scientific Book Chapters, in: MULTINATIONAL ENTERPRISES AND HOST COUNTRY DEVELOPMENT Volume 53: World Scientific Studies in International Economics, chapter 4, pages 53-77, World Scientific Publishing Co. Pte. Ltd..
    9. Liu, Ju, 2015. "A Case Study on Multinational Companies’ Global Innovation Networks and Global Production Networks: Toward a Theoretical Conceptualisation," Papers in Innovation Studies 2015/45, Lund University, CIRCLE - Centre for Innovation Research.
    10. Liu, Ju & Chaminade, Cristina, 2014. "Exploring the interplay, differences, and commonalities between global production networks and global innovation networks of two multinational companies," Papers in Innovation Studies 2014/7, Lund University, CIRCLE - Centre for Innovation Research.
    11. García-Vega, María & Hofmann, Patricia & Kneller, Richard, 2019. "Multinationals and the globalization of R&D," International Journal of Industrial Organization, Elsevier, vol. 63(C), pages 583-614.
    12. Zachary Cohle, 2019. "Global Innovative R&D Offshoring with Heterogeneous Labor: The Role of IPR‐Protection on Technology Transfer and the Brain Drain Effect," Southern Economic Journal, John Wiley & Sons, vol. 86(2), pages 691-725, October.
    13. Rachel Griffith & Gareth Macartney, 2014. "Employment Protection Legislation, Multinational Firms, and Innovation," The Review of Economics and Statistics, MIT Press, vol. 96(1), pages 135-150, March.
    14. Stiebale, Joel & Vencappa, Dev, 2018. "Acquisitions, markups, efficiency, and product quality: Evidence from India," Journal of International Economics, Elsevier, vol. 112(C), pages 70-87.
    15. Amelia U. Santos-Paulino & Mariagrazia Squicciarini & Peilei Fan, 2008. "R&D (Re)location: A Bird's Eye (Re)view," WIDER Working Paper Series RP2008-100, World Institute for Development Economic Research (UNU-WIDER).
    16. John Francis & Yuqing Zheng, 2012. "Trade, Geography, and Industry Growth in U.S. Manufacturing," Southern Economic Journal, John Wiley & Sons, vol. 78(4), pages 1222-1241, April.
    17. Colin Davis & Ken‐ichi Hashimoto, 2023. "Innovation offshoring and reshoring with fully endogenous growth," Southern Economic Journal, John Wiley & Sons, vol. 90(1), pages 90-120, July.
    18. Colin Davis & Ken-ichi Hashimoto, 2016. "Innovation and Manufacturing Offshoring with Fully Endogenous Productivity Growth," Discussion Papers 1636, Graduate School of Economics, Kobe University.

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    More about this item

    Keywords

    Monopolistic Competition; R&D; High-Tech Production; Agglomeration Economies;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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