Winners and Losers from Trade? - Product and Process Innovation in a 3x3 Model

Franziska Tinnefeld, Florian Wagener and Florian O.O. Wagener

No 12774, CESifo Working Paper Series from CESifo

Abstract: We develop a multi-region, multi-sector Romer-type dynamic partial equilibrium model of endogenous growth. We calibrate on equally sized regions North, East, and South, based on data from Germany, Poland, and China. We compare the effect of trade block formation on innovation outcomes. Integration leads to aggregate increase in both product and process innovation, resulting in aggregate welfare gains. These are concentrated in North: the research sectors of East and South collapse. Our findings explain data from eastern European countries, as well as current R&D policies in China that are designed to avoid downstream lock-in.

Keywords: product innovation; process innovation; economic integration (search for similar items in EconPapers)
JEL-codes: F15 O31 (search for similar items in EconPapers)
Date: 2026
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