Moving up or moving out? A unified theory of R&D, FDI, and trade

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review

15 Scopus Citations
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Author(s)

  • Chia-Hui Lu

Detail(s)

Original languageEnglish
Pages (from-to)324-343
Journal / PublicationJournal of International Economics
Volume71
Issue number2
Online published4 Oct 2006
Publication statusPublished - Apr 2007
Externally publishedYes

Abstract

This paper introduces industrial heterogeneity in R&D productivity into the quality-ladder model of the North-South trade to study how firms' choices made between R&D and foreign direct investment (FDI) vary across industries, and how such choices consequently determine the evolution of comparative advantage and trade. It shows that trade reveals product-cycle dynamics in medium-tech industries but remains static in others. High-tech industries experience continued innovation in the North with no migration of product lines. Medium- and low-tech industries migrate South via FDI to exploit low production costs with the South then replacing the North as the dominant exporter. However, medium-tech industry production eventually shifts back to the North when superior products are marketed by Northern innovators, making the end of one complete product cycle and the start of the next. Because of marginal R&D productivity, the relocated low-tech industries are not presented with the option of moving up and thus stagnate. 

Research Area(s)

  • Foreign direct investment, Vertical innovation, Product-cycle trade

Citation Format(s)

Moving up or moving out? A unified theory of R&D, FDI, and trade. / Lu, Chia-Hui.
In: Journal of International Economics, Vol. 71, No. 2, 04.2007, p. 324-343.

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review