Innovation and Manufacturing Offshoring with Fully Endogenous Productivity Growth

Colin Davis and Ken-ichi Hashimoto

No 1636, Discussion Papers from Graduate School of Economics, Kobe University

Abstract: This paper investigates the relationship between net offshoring patterns for innovation and manufacturing and fully endogenous productivity growth in a two-country model. The occupational choice of skill-differentiated workers into low-skilled employment in production and high-skilled employment in innova- tion determines labor market allocations, and perfect investment mobility allows firms to shift innovation and manufacturing independently between countries. These mechanisms generate a tension between access to technical knowledge and low-cost high-skilled labor in the location decision for innovation, which results in innovation and manufacturing tending to concentrate in the asset-wealthy (asset-poor) country when trade costs are high (low). The model exhibits a positive relationship between innovation costs and the concentration of industry and innovation, ensuring that a rise in knowledge diffusion between countries coincides with increases in net offshoring flows in innovation and manufacturing from the asset-wealthy country to the asset-poor country, and a faster rate of productivity growth, when the asset-wealthy country has larger shares of innovation and production.

Keywords: innovation offshoring; manufacturing offshoring; endogenous productivity growth; process innovation; industry location; international trade (search for similar items in EconPapers)
JEL-codes: F12 F43 R11 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2016-10
New Economics Papers: this item is included in nep-geo, nep-ino, nep-int and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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