A symmetric Heckscher–Ohlin model of endogenous growth

Basant Kapur ()

Journal of Economics, 2015, vol. 116, issue 3, 183-209

Abstract: We study the interaction between production and R&D patterns in a $$2\times 2\times 2$$ 2 × 2 × 2 open-economies model of endogenous growth. Unlike existing studies, we treat the two industries entirely symmetrically—both are imperfectly competitive, and engage in sector-specific expanding-product-variety or quality-ladder innovation activities. To achieve a more satisfactory analytical characterization, we eliminate scale effects and impose strict concavity rather than linearity on the contribution of skilled labour to industry R&D. With imperfect international knowledge spillovers, an increase in one country’s skilled-labour endowment above the other’s affects production and R&D activities in both countries, with the resulting increased production and research specialization across countries raising world innovation rates in both industries. Surprisingly, increasing one country’s skilled-labour endowment towards the other’s can reduce world innovation rates in both industries, on account of the resulting reduced specialization. Broader implications of the analysis are also discussed. Copyright Springer-Verlag Wien 2015

Keywords: Innovation; North–North trade; Endogenous growth; Heckscher–Ohlin; Expanding product variety; Quality ladders; F1; F4; O3 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:116:y:2015:i:3:p:183-209

DOI: 10.1007/s00712-014-0430-4

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