Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/271874 
Year of Publication: 
2023
Series/Report no.: 
CESifo Working Paper No. 10230
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper develops a two-country, dynamic general equilibrium model with innovation contests to study the impact of globalization on the skill premium and fully-endogenous growth. Higher quality products are endogenously discovered through stochastic and sequential global innovation contests in which challengers devote resources to R&D to discover new products while technology leaders undertake rent-protection activities (RPAs) to prolong the expected duration of their temporary monopoly power by hindering the R&D effort of challengers. The model generates intra-sectoral trade, multinationals, and international outsourcing of investment services. Globalization, captured by a move from autarky to the integrated-world equilibrium, leads to convergence of wages and growth rates. Globalization and long-run growth are either substitutes or complements depending on a country's relative skill abundance and the ranking of skill intensities between RPAs and R&D services. Trade openness between two countries that possess identical relative skill endowments but differ in size does not affect either country's long-run growth.
Subjects: 
innovation contests
economic growth
scale effects
R&D
rent-protection activities
barriers to innovation
wage premium
JEL: 
F10
F30
F40
Document Type: 
Working Paper
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