Winners and losers from trade? Product and process innovation in a 3×3 model

Franziska Tinnefeld and Florian Wagener
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Franziska Tinnefeld: Università Cattolica del Sacro Cuore and Fondazione Eni Enrico Mattei
Florian Wagener: Universiteit van Amsterdam

No 2026.20, Working Papers from Fondazione Eni Enrico Mattei

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; integration (search for similar items in EconPapers)
Date: 2026-07
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