Endogenous sunk costs, flexible manufacturing and the productivity effects of international trade

Eckel, Carsten (2009): Endogenous sunk costs, flexible manufacturing and the productivity effects of international trade. In: Scandinavian Journal of Economics, Vol. 111, No. 2: pp. 369-386

Abstract

The paper addresses the productivity effects of international trade in the presence of flexible manufacturing and endogenous sunk costs (cost-reducing R\&D). It shows that international trade raises R\&D expenditures, but this will not necessarily boost productivity because of possibly counteracting market structure effects. The analysis is conducted in general equilibrium so that implications for real wages and welfare can also be addressed. Both can fall when trade leads to excessive R\&D investment.

• Item Type: Journal article
• Faculties: Economics; Economics > Chairs > Seminar for International Trade Theory and Trade Policy
• Subjects: 300 Social sciences > 330 Economics
• Language: English