Globalization, R&D and the iPod Cycle

This paper constructs a dynamic scale-free North-South model of trade with endogenous innovation. In the North a local-sourcing-targeted race and an outsourcing-targeted R&D race take place simultaneously within each industry. The former results in the winner firm manufacturing in the North, while the latter culminates in the winner firm's immediate outsourcing to the South, generating the iPod cycle. We study three aspects of globalization: reductions in the resource-requirement in outsourcing-targeted R&D, increased subsidies to outsourced production, and reduced Southern imitation due to TRIPs. Each event boosts outsourcing-targeted R&D and increases the frequency of iPod cycles. The aggregate innovation rate rises despite a possible fall in local-sourcing-targeted R&D, and the North-South relative wage decreases.

[1]  Chia-Hui Lu.  Moving up or moving out? A unified theory of R&D, FDI, and trade , 2007 .

[2]  E. Dinopoulos.  The Growth Effects of National Patent Policies , 2008 .

[3]  N. Long,et al.  Fragmentation and services , 2005 .

[4]  Susanto Basu,et al.  Procyclical Productivity: Increasing Returns or Cyclical Utilization? , 1995 .

[5]  Amy Jocelyn Glass,et al.  Intellectual property rights and foreign direct investment , 2002 .

[6]  G. Grossman,et al.  Innovation and growth in the global economy , 1993 .

[7]  Carmelo Pierpaolo Parello,et al.  A north-south model of intellectual property rights protection and skill accumulation , 2008 .

[8]  Gordon H. Hanson.  Should Countries Promote Foreign Direct Investment , 2001 .

[9]  E. Lai,et al.  International intellectual property rights protection and the rate of product innovation , 1998 .

[10]  Kamal Saggi,et al.  Foreign Direct Investment and the Nature of R&D , 1999 .

[11]  A. Glass,et al.  Intellectual property rights and quality improvement , 2007 .

[12]  Stefan C. Norrbin,et al.  The Relation between Price and Marginal Cost in U.S. Industry: A Contradiction , 1993, Journal of Political Economy.

[13]  Lee G. Branstetter,et al.  Do Stronger Intellectual Property Rights Increase International Technology Transfer? Empirical Evidence from U.S. Firm-Level Panel Data , 2004 .

[14]  Nuttapon Photchanaprasert.  Innovation and Production Offshoring: Implications on Welfare , 2011 .

[15]  Lee G. Branstetter,et al.  Intellectual Property Rights, Imitation, and Foreign Direct Investment: Theory and Evidence , 2007 .

[16]  Peter Thompson,et al.  Endogenous growth in a cross-section of countries , 2000 .

[17]  A. Glass.  Outsourcing Under Imperfect Protection of Intellectual Property , 2004 .

[18]  Shahid Yusuf,et al.  Growth through Innovation : An Industrial Strategy for Shanghai , 2009 .

[19]  Amy Jocelyn Glass,et al.  Innovation and wage effects of international outsourcing , 2001 .

[20]  F. Şener,et al.  Intellectual Property Rights and Rent Protection in a North-South Product-Cycle Model * , 2004 .

[21]  Robert C. Feenstra,et al.  Integration of Trade and Disintegration of Production in the Global Economy , 1998 .

[22]  Kenneth L. Kraemer,et al.  Mapping the Value of an Innovation: An Analytical Framework , 2007 .

[23]  Linghui Tang.  Communication Costs and Trade of Differentiated Goods , 2006 .

[24]  Elhanan Helpman,et al.  Global Sourcing , 2003, Journal of Political Economy.

[25]  E. Helpman.  Innovation, Imitation, and Intellectual Property Rights , 1992 .

[26]  H. Kierzkowski,et al.  The role of services in production and international trade , 1988 .

[27]  Daron Acemoglu,et al.  Incomplete Contracts and the Product Cycle , 2005 .

[28]  R. Mehra,et al.  THE EQUITY PREMIUM A Puzzle , 1985 .

[29]  Roger K. Conway,et al.  Trends in American economic growth, 1929-1982 , 1985 .

[30]  L. Winters,et al.  The Political Economy of International Trade: Essays in Honour of Robert E. Baldwin. , 1991 .

[31]  R. Vernon.  International investment and international trade in the product cycle , 1966 .

[32]  Selin Sayek,et al.  Outsourcing and Wage Inequality in a Dynamic Product Cycle Model , 2006 .