Innovation Offshoring with Fully Endogenous Growth

Abstract

In recent years firms have started to offshore their innovation activities to emerging economies. This paper investigates the implications of innovation offshoring for productivity growth in a two-country framework that features a tension between access to technical knowledge and low-cost high-skilled labor in the innovation location decision. Industry and innovation tend to concentrate in the asset-wealthy country when trade costs are relatively high. A positive relationship between innovation costs and industry concentration then ensures that improved international knowledge diffusion coincides with an increase in net offshoring flows in innovation from the asset-wealthy country to the asset-poor country, and potentially with faster productivity growth.

A new impetus for endogenous growth: R&D offshoring via virtual labor mobility

“…The former is based on the standard Heckscher-Ohlin-Samuelson model; the latter on the Specific-Factors model. 6 Within the framework of endogenous growth model, Davis and Hashimoto (2018) have developed a model in which firms are free to choose the locations of production activity and R&D activity separately. They focused on the roles of occupational choice by (potential) workers and difference in the relative abundance of assets of the countries.…”