Outsourcing Innovation in Product Cycles

In this quality-ladder product-cycles model, a southern firm can undertake innovation by collaborating with a northern firm through R&D outsourcing. Generally, I find that the initial steady-state scale of R&D outsourcing and the fraction of innovative tasks undertaken by southern labor through R&D outsourcing critically affect the results of comparative statics. Particularly, the friendly policy to promote R&D outsourcing may be beneficial for both of the North and the South only if the scale of R&D outsourcing is small.