For this week’s RITM Lunch Seminar, Colin Davis from Doshisha University will be presenting “Innovation and Manufacturing Offshoring and Fully Endogenous Productivity Growth” (with Ken-ichi Hashimoto, Kobe University). The RITM Lunch Seminar will be on Monday, September 19, in room B305, 12-1pm.
This paper investigates the relationship between net offshoring patterns for innovation and manufacturing and fully endogenous productivity growth in a two-country model. The occupational choice of skill-differentiated workers into low-skilled employment in production and high-skilled employment in innovation determines labor market allocations, and perfect investment mobility allows firms to shift innovation and manufacturing independently between countries. These mechanisms generate a tension between access to technical knowledge and low-cost high-skilled labor in the location decision for innovation, which results in innovation and manufacturing tending to concentrate in the asset-wealthy (asset-poor) country when trade costs are high (low). The model exhibits a positive relationship between innovation costs and the concentration of industry and innovation, ensuring that a rise in knowledge diffusion between countries coincides with increases in net offshoring flows in innovation and manufacturing from the asset-wealthy country to the asset-poor country, and a faster rate of productivity growth, when the asset-wealthy country has larger shares of production and innovation.