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Endogenous Sunk Costs, Flexible Manufacturing and the Productivity Effects of International Trade
Author(s) -
Eckel Carsten
Publication year - 2009
Publication title -
scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/j.1467-9442.2009.01568.x
Subject(s) - sunk costs , productivity , economics , welfare , investment (military) , general equilibrium theory , international economics , international trade , microeconomics , macroeconomics , market economy , politics , political science , law
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.