Innovation and Production Offshoring: Implications on Welfare

Nuttapon Photchanaprasert

Global COE Hi-Stat Discussion Paper Series from Institute of Economic Research, Hitotsubashi University

Abstract: I theoretically analyze the effects of a strengthening IPR protection and an improvement of technology of innovation of offshoring on the rate of innovation offshoring, rate of imitation, rate of innovation, relative wages, real wages and domestic welfare. A North-South dynamic general equilibrium model of trade with endogenous imitation and innovation and production offshoring is constructed. To trade with lower Southern wages, Northern firms confront the problem of information leakage to the Southern firms and monitoring costs if they do offshore innovation and production. The model predicts that a strengthening of IPR protection decreases the rate of innovation and the rate of imitation but increases the rate of innovation offshoring. Northern real wages also decrease with a strengthening of IPR protection but Southern real wages increase. It may hurt the North but benefit the South. An improvement in technology of innovation offshoring increases the rate of innovation, the rate of imitation and the rate of innovation offshoring. Northern relative real wages decrease with such improvement but Southern real wages increase. It may benefit the North and the South.

Keywords: offshoring; innovation; information leakage; productivity gap; welfare; trade policies (search for similar items in EconPapers)
JEL-codes: D43 F12 F13 F21 F23 O31 (search for similar items in EconPapers)
Date: 2011-03
New Economics Papers: this item is included in nep-dge and nep-ino
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