Université Paris I Panthéon Sorbonne UFR de Sciences Economiques 02 MASTER Recherche : Analyse et Politiques Macroéconomiques.

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1 Unversté Pars Panthéon orbonne UFR de enes Eonomques 02 MATER Reherhe : Analyse et Poltques Maroéonomques Modèles ord-ud: Endogènsaton des omportements mgratores des travalleurs qualfes nduts par l mplantaton des multnatonales au ud. Dreteur de Mémore: Professeur Bertrand Wgnolle Présenté et soutenu par : Raphaël Rubn

2 Unversté de Pars Panthéon orbonne n entend donner auune approbaton, n mprobaton aux opnons émses dans e mémore ; elles dovent être onsdérées omme propres à leur auteur. 2

3 hort Thess Raphael Rubn Department of Eonoms, Unversty Pars Pantheon-orbonne orth-outh Models: ndgenzaton of qualfed labor mgraton ndued by the mplantaton of multnatonals n the outh. Advsor: Professor Bertrand Wgnolle Table of Contents 3

4 . A Model of Threshold for mtaton to nnovaton, n the proess of reverse-engneerng mported ntermedate goods from orth to outh, and where ntrodue bas.. p5 A. Abstrat.p5 B. Model for the (orth Multnatonal p7 C.Model for the outh ompettors of the multnatonal. p8 D. Preferenes...p9 E.Employee Mgraton Patterns...p10 F. Models of Competton..p14 G. olvng for balaned growth n the outh...p15 H. olvng for Balaned Growth n the orth p18. A Model nspred by PAU EVE et al. relatve to the phases of transton between the states of nnovaton, mtaton and where ntrodue a rate of assmlaton dependant on aptal flows......p20 a. ntroduton p20 b. otaton ummary.p20. Abstrat...p20 d. The model p22 e. Proposton1.p28 f. Proposton2.p28 g. Proposton3.p29. V. A theory on Human Captal versus mmgraton orth outh models and Exhange rates.. V. A revew: Push-Pull Mgraton aws... V. A revew: nnovaton, mtaton and ntelletual Property Rghts: ntrodung Mgraton n Helpman s 1991model. V. A revew: Dnopoulos Model. V. A revew: Theory of defensve kll-based nnovaton and Globalzaton.. 4

5 . A Model of Threshold for mtaton to nnovaton, n the proess of reverse-engneerng mported ntermedate goods from orth to outh, and where ntrodue onsumer bas. A. Abstrat: et us follow Romer s framework (1990 for the ntermedate goods setor. We assume the followng. A orth operated multnatonal frm s mplanted n the orth and the outh. The orth desgns and makes the hgher qualty produts. n the outh, ts manufaturng dvsons produe ntermedate and fnal goods of lower qualty ompetng aganst the outh loals. The multnatonal s onstraned by the outh government to transfer a ertan amount of knowhow Hns and tehnology xns. t also benefts from the large pool of heaper labor, and leads the efforts of nnovaton n the outh. Fnal goods and ntermedate goods are tradable, although some restrtons may apply on the part whh s tehnologally advaned. The ountres, ndependently of the multnatonal and of ts outh ompettor, stll produe non tradable goods, to whh qualty rankngs do not apply, beause they depend on loal taste. The workers n the orth and the outh thereby beneft from both types of goods, tradable and non tradable. Compettors n the outh reverse-engneer the goods produed n the outh and ompete wth the orth on the fnal goods market whh may be tarff proteted, sellng bak to the orth operated multnatonal frm, or on the ntermedate goods market n the outh. To the dfferene of Curre et al (1999, 1996, but smlarly to our frst model s assumpton that the rate of absorpton of the orth s human aptal s endogenous to the mportane of foregn aptal nvestment, the present model nspred by Ahmd Datta s model llustrates the mehansm of endogenous absorpton through reverse-engneerng of foregn desgned goods. Conlusons of the orgnal Ahmd Datta s 2005 model were that a threshold of aumulated human aptal knowledge must exsts, before the loal human aptal and mported tehnology beome substtutes from beng omplements. We learly reah to the same onluson here. Ths fndng s onsstent wth the role gven to human aptal by Keller We here strve to demonstrate our frst model hypothess by analyzng: The effet of the multnatonal s deson of foregn nvestment on the threshold (mtaton to nnovaton state. 5

6 The effet of nternatonal mgraton of qualfed workers on the threshold. The effet of orthern onsumer s bas for loal made produts, on the threshold. How does the onstrant mposed on the multnatonal to transfer tehnology and know-how, translate on ts profts, on ts market share n the outh? Total abor Fore n orth Total abor Fore n outh nnovator orth nnovator outh mtator outh orth Market nnovator outh mtator outh outh Market n the above dagram are portrayed the atvtes of produton, mtaton and nnovaton. The dotted lne separates the atvtes of the multnatonal from those of ts south ompettors. From the standpont of the multnatonal s atvtes (all ators belong to the multnatonal: We assume that the nnovator n outh has an nterest n ompetng wth ts orth ounterpart, yet t must also ompete wth ts loal ompettor n order to keep a leadng edge on the nnovaton n the outh and retan the best talent. Below a ertan threshold, t ompetes wth ts loal ompettor. Past a ertan threshold *>A, t ompetes wth ts orth ounterpart. From the standpont of the multnatonal s ompettor s atvtes: The nnovator n outh past a ertan threshold *>A ompetes wth the multnatonal n the orth. 6

7 B. Model for the (orth Multnatonal: Yn H n ( A 0 xnn 1 ( (1 Consoldated Produton, 0 ( xss 1 (, * ( xsn 1 Ths orth produton funton of fnal goods s a onstant returns to sale Cobb-Douglas tehnology where A s the ndex of the most reently nvented good, representng the stok of knowledge n the north. The orth multnatonal employs: ( nnovatve workers n the orth to produe n the orth for the orth usng xnn tehnology. mtatng workers to produe n the outh for the orth and the (, outh based on the outh knowledge aptal. (, nnovatve workers for produts no yet mtated by the outh. k A 0 x nn ( d 0 x produton equaton. ss ( d * x nn ( d Represents the world s stok of aptal n the above, represent the market shares of the multnatonal, n the outh, of ts (mposed mported goods xns and on xss.. K s measured n the unts of onsumpton goods foregone, or K(t=Y(t-C(t=(t. As Ahmd-Datta note n the orgnal artle, a maorty of goods fndng ther way to the U markets from Chna are ether fnal goods, or ntermedate goods that are the outome of outsourng arrangement by U based frms, rather than exports of loned ntermedate goods by ndependent Chnese frms. n the orth: A n H An A Ths knowledge, a non rval publ good s avalable to all and the produtvty of researh s lnearly related to the exstng knowledge stok and to human aptal. The ntermedate goods setor buys the nnovator s desgns A sellng ts transformed aptal goods to the fnal good produers. 7

8 t s assumed that the ntermedate setor, whh s both the nnovator and produer of aptal goods, s monopolstally ompettve, appropratng the returns from R&D. C. Model for the outh ompettors of the multnatonal: Ys ( 0 ((1 The outh ompettor employs: * 1 1 xss (, ((1 xsn (2 ( from the outh to mtate n the outh for the outh s onsumpton or the orth s. from the outh to nnovate for the outh and past a threshold to the orth (, as well. Here the key ssue s that the proess of aqurng knowledge s done through reverse engneerng of mported good and through the deson to nvest abroad. Therefore the queston s how to relate the produton tehnologes xss to xsn and xnn. We hoose 1 xss ( ( Hsn Hss xsn( (3 The one fator over whh the multnatonal has ontrol s Hsn, the level of human aptal, whh s devoted to the mtaton proess [, *] and mposed by the outh to the multnatonal. Hsn = 1- Hn (4 Past a ertan threshold n Hsn, the dependene on xsn dereases and sgnals the onset of nnovaton. Meanwhle, the atvty of nnovaton n the outh by both the multnatonal and ts ompettor leads to an nrease n the global knowledge of the outh: / t s xss( d (5 1 Or / t s ( Hsn Hss xsn( d (6 o ntally, the outh laks the know-how and resoures to proess A, even though A, takng the form of publ knowledge s feely avalable. <A measures the tehnology gap of the outh, whle * = [, A]. t s also noteable that when φ->1, the atvty of nnovaton beomes / t ( 1 s ( Hsn Hss o 8

9 D. Preferenes: Preferenes n eah ountry are gven by nter-temporal utlty funton of the Ramsey type, nf 1 U C /(1 * e o t dt where =,, where ρ s the rate of tme preferene, σ s the elastty of nter-temporal substtuton and C s fnal goods onsumpton. Preferenes enter balaned growth path through the Euler soluton to equaton (7: C / C ( r / uh equaton ndates that n the absene of aptal movements, here only from the orth to the outh, the nterest rates won t equalze leavng the open possblty of dfferent growth rates. (7 E. Employee Mgraton Patterns: We now onentrate on how the desons taken by employees of the ntermedate and researh setors of the multnatonal affet orth and outh growth. The formulaton s enabled beause the multnatonal of frm whh employs the latter, may faltate ther transfer from one dvson to another, aordng to ts needs. We assume: To be able to work n the orth, the outh employee must belong to the outh branh of the multnatonal. Belongng to the multnatonal wll nrease the ultural fator of the employee; thereby redung ts nterest n stayng n the outh, sne t may not fnd there the qualty of goods t requres. A orth employee wll move to the outh branh f ts derease n salary s overompensated by ts gan n utlty due to the lower pre of non tradable goods, xss. abor nnovatng for the outh Compettor A abor nnovatng for the Multnatonal n the outh B abor nnovatng for the Multnatonal n the orth C 9

10 10 Moreover, we assume that xns s tradable: t s beng mported by the multnatonal under onstrant by the foregn government. The maxmzaton of profts n ths ase (as seen n paragraph G. lead to: C A n X w w w s Pn xsn xss xnn n Pn xnn H n,,, * 1, 0 1, 0 1 (, ( (, ( max The orth gets the aumulated knowledge aptal n the outh for free, whle n ounterpart t s fored to nvest n nnovatve setors both to take the edge n the loal market and also beause of the foregn government s poles. And xsn Pns w w d xsn d xss s Ps xss s X, * 1, 0 1 ( * ] (1 ( [ ] ( (1 (, (1 ( [ max We assume that the multnatonal outh dvson and ts outh ompettor play a ompetton a la Cournot on two markets, the orth multnatonal nnovatve setor and ts ounterpart, the orth multnatonal mtatve setor and ts ounterpart. The ompanes play a Cournot game, based on the frst moble fator, xsn, under onstrant that they maxmze the budget onstrant of onsumers. Max n xsn: og( ( U ] ( [ * 1, d xsn + / 1 * 1,...] *] ] (1 [ ( d xsn Under onstrant C w w w w w,,,, = ] ( * 1, d xsn + * 1, ] (1 ( [ d xsn + (1 ( ( (1 ( 1(1 ( ( 1(1 (,, 1 1(1 (, 1 1(1 (, xsn xsn xsn xsn

11 n an effort to dentfy the auses of mgraton, we determne the nfluene of bas on the sze of tehnology transfers xsn. We take n order to smplfy that ( 1(1 [( [(,, xsn xsn (, ( 1(1 1 ( (1 xsn, (1 xsn Moreover, we onsder at the moment s = n,. 5, 1 ( 1(1 1 ] ( 1(.5 exp[(( log xsn] exp[( log(1 xsn [ xsn (1 xsn ] ] We take the dervatve to be able to express: xsn / : d (.5exp[(( 1.5 1log xsn].5( 1exp[( 1.5 1log xsn]( d.5 log xsn ( / xsn dxsn =0 exp[( log(1 xsn][( d.5 log(1 xsn ( /(1 xsn dxsn] Rewrtng: d (.5[exp[(( 1.5 1log xsn](1.5( 1 log xsn exp[( log(1 xsn]log(1 xsn] dxsn exp[(( log xsn].5( 1(( / xsn exp[( log(1 xsn]( ( /(1 xsn dxsn Frst term dereases n ph, dereases n xsn, seond dereases n ph, nreases n xsn but ts ontrbuton s smaller beause of the double log., Results of Mathemata mulaton: da/dxsn g xsn - 1- g g 2 + th1 1- t 2 - xsn- t + - g+gf xsn - 2+H1- gh- 1+H1- gh- 1 +H1 - gh- 1 H- - t +t 2+H fh xsn- th- H1- th- 1 +H1 - th- 1 + H- 1 + da/dph - g+gf xsn - 1+H1- gh- 1+H1- g- - t +t fh1 1+H1- - xsn- th- 1+H1 - t- - t +t fh1 1+H1- - xsn- th- 1+H1 - t2h- 1 + og@1- xsnd+ - g+gf xsn - 1+H1- gh- 1+H1- g2h- 1 + og@xsnd Dxsn/dph + 11

12 H H H- 0.5H1 - xsn H- 0.25H1- xsn- 1+H- k og@xsnd 1 + og@1 - xsnd xsn H- 1+H H1 - xsn1.5 xsn y 2+0.5H- 0.5H1- xsn- 1+H H- 1+ H xsn H- 1+H- { z H- 1 + H- 1 + (* xsn=.4 =.5 B=.6 xsn=.3 =.5 B= xsn=.2 =.5 B= 4.9 * (* xsn =.4 =.9 B= xsn=.4 =.7 B=.53 xsn=.4 =.3 B= 1.51 * Overall, we fnd that the stronger the elastty of substtuton (bas tlts towards the multnatonal nnovatve setor n the outh, and the more wll tehnology transfers take plae, and the stronger the growth of the knowledge aptal of the outh. At some pont the dependeny on xsn tehnologal mports redues whh redues the flow of tehnology transfer, therefore self equlbratng the domnaton of the orth or the outh, on the nnovatve role n the orth. eond, the onstrant by the foregn government to mpose free tehnology transfers by the multnatonal leads to less senstvty to bas. A bgger (1-xsn leads to a derease n the rate of tehnology transfer to the outh. d(xsn/xsn. One aspet to onsder s also the aulturaton faed by the orth multnatonal workers n the outh. upposng that ther onng of the orth multnatonal n the outh, leads to unanswered desres, xnn, ntermedate goods not produed n the outh. Then a negatve term whh s dsappreaton and that ould be proportonal to (A-, the qualty gap and to the rato between employees belongng the the multnatonal n the outh and to the other loals. w w, w w, C w,, = / ( A * ( * 1, xsn d] + [ ( 1, (1 xsn ] d Then, learly, we obtan n our above maxmzaton n the tehnology transfer xsn a more aurate expresson of mgraton. We fnd that a hgher dsapreaton leads to more tehnology transfers, whh n turn redues dsapreaton by redung the gap between the orth and outh. + 12

13 We now look at a dfferent perspetve: we analyze how the multnatonal and ts south ompettor attrat the best talent throughout the world, through the maxmzaton of ther proft n terms of populaton pools. Therefore, nstead of playng a Cournot game n xsn, we maxmze ths utlty n the other essental fator: n, s whh are also lmted quanttes. Max n n, s: og( U ( onstrant [ * (, d 1 xsn ] + * [ (, (1 xsn ] d *]...] w w, w w, C w,, * ( = * 1, xsn d] + [ ( 1, (1 xsn ] d 1 1/ + Under U U w w ( xsn, ( xsn, 1 1 F. Models of Competton: Here are the dynams of the model: / t A ( t B ( t (11 n steady state, B / A / t C ( t D ( t E ( t (12 / t F ( t G ( t 13 At equlbrum, t must be that there s no populaton transfer of mgrant workers from A to B and from B to C. 13

14 Moreover, the steady state populatons are onstant. Therefore we rewrte: A B C D E F G We obtan these fators maxmzng the utlty of onsumers wth respet to the dfferent populatons. G. olvng for balaned growth n the outh: n the range [0, ] the outh ompettor of the multnatonal uses ntermedate goods produed loally xss sne transaton osts would make xns more expensve. However n the range [, *], only ntermedate mported goods are avalable, yet these are obtaned for free due to the multnatonal s onstraned transfers of tehnology 1. ne only the multnatonal reates xns, only t pays for t. Yet the outh pays for xss whle the multnatonal doesn t pay for t. Proft maxmzaton by the perfetly ompettve fnal goods produers n the outh s represented as: 1 1 max s X ( [ ( xss Ps( xss( ] d [ (, xsn ] d * w w, Pns( x ny 0 ( whh yelds the demand for domest goods xss: Ps, ( xss (1 s s xs (8 Ps, n( x (1, ny x ny * Proft maxmzaton by the multnatonal n the fnal good setor n the orth s represented as: 1 Foregn mposed transfers of Tehnology 14

15 maxn * (, X ( A 0 xsn H 1 n ( Pn, s x xnn 1 w Pn, n xnn w, C 0 ( w,, xss whh yelds the demand for domest goods xnn and for mported goods xns:, 1 Pn, n( xss (1 H n xnn (9 xn Ps, n( x (1 (10 And fnally for loal goods Pss (11 We now ome bak to the loal ntermedate goods produers n the outh. The proft of eah frm from the sale of ntermedate goods to fnal goods produers be they the multnatonal or ts ompettors s: xs Ps( xss xss rs xss (11 Where rs*xss represents the nterest ost of aptal. Maxmzng (11 n xss usng (8 yelds the monopoly pre of xss Ps= rs /( 1 (12 The flow of monopoly profts at ths pre s xs Ps xss ext we determne P nf rs( l dl t e t P the ost of mtated desgn. xs( d Dfferentatng n tme yelds xs rs P (14 Ps xs / rs xss /(1 P 2 / P (1, Replang from (8 and (12 nto (14 => s s 1/ rs We note that a hgher nterest rate n the outh redues P as t redues the demand for suh nvestments and thus ther reservaton ost. ext we determne the outh demand for hgher tehnology goods. The ost of mtaton nludes (usng (13 1 xss ( ( Hsn Hss xsn ( (3 15

16 ne the orth assumes the part of the ost for nnovatve desgns, t hooses the demand xns. wh xns onst ((1 H (ee below 1 nn (16 Based on that demand, the outh demand xss s found to be: wh xss ( onst ((1 H 1 ( Hsn Hss 1 nn We dedue that outh demand s ndependent on ts populaton sze. However t s negatvely orrelated to the orth populaton sze as the multnatonal wll derease ts tehnology transfers n suh a ase. ( Hsn Hss The rato wll nrease wth Hsn. 1 (1 Hsn H. olvng for Balaned Growth n the orth: The orth hooses aptal transfer Hns versus Hn, and pays for nnovatve goods xn,s n the outh. et us determne the maxmum proft n xnn and xsn. Pn Ps, n( xss (1 H n xnn (9, n( xss (1 xns (10 16

17 The orth s atvty of mtaton of hgher qualty goods n the outh ompetes wth that of ts outh ompettor, therefore presents smlar osts haratersts exept for ts transfer of (human aptal, leads to osts. The orth learly wshes to mnmze ths ost, beng under onstrant to transfer tehnology. Usng the fat that: 2 /( P ( (1 H n, n rn 1/( wh H ( P P n n x (15 The varable of ontrol beng Hsn, the orth maxmzes ts proft wth respet to the varable Hsn. w H ' onst ( ss (1 H nn x H Whh leads to the demand xns: n w H ' onst ((1 H 1 nn x n 0 x n wh onst ((1 H 1 nn (16 (where Hsn<1 Clearly, a hgher transfer of human aptal wll lead to a muh smaller transfer of tehnologal goods, whle a hgh transfer of hgh tehnology goods wll redue the transfer of human aptal. The total demand from the outh for the orth s mported goods nludes the ones used n the fnal goods produton proess and the ones used n mtaton. wh xns onst ((1 H Ps, n( x + [ 1 nn (1 ny ], (17 uh an expresson allows us to wrte the outh s nverse demand for northern ntermedate goods, whh s negatvely orrelated to mport pre. Total profts of the orth s aptal goods setor are based on both these soures of demand: xn pn * xn pns * xns rn( xnn xns (17bs ubsttutng for Ps,n and Pn yelds: Funton(xn,s ; xn,n (18 Maxmzng t n xsn and xnn yelds equlbrum pres for both markets 17

18 18

19 . A Model nspred by PAU EVE and al. relatve to the phases of transton between the states of nnovaton, mtaton a. ntroduton: We wsh to study n the footsteps of DAVD CURRE, PAU EVE, JOEPH PEARMA, AD MCHAE CHU the transton from the outh 2 mtatng and the orth nnovatng, to the orth nnovatng and the outh both nnovatng and mtatng, to the outh nnovatng and mtatng and the orth nnovatng and mtatng as well. b. otaton ummary: Throughout the paper, we use: upersrpt: orth outh, ubsrpt: nnovaton mtaton. For the varables and parameters: n number of varetes, x demand for varety, p pre, α taste parameter, ε elastty of substtuton. E total expendture, p profts, w wage rate, total labor employed, K knowledge aptal, 1/a effeny parameter for nnovaton, 1/a effeny parameter for opyng, θ onstant of proportonalty to densty of varetes, κ rate of assmlaton of knowledge aptal from the other ountry, v value of frm, r rate of returns on rsk less bond, ω relatve wage rato (w/w, ξ produt share, rate of opyng orth to outh, d rate of opyng outh to orth, g rate of growth, k rato of outhern nnovatve knowledge aptal n the orth (K/K, ρ dsount fator.. Abstrat: n the orth outh ompetton, the outh (as n the Ahmd Data model 3 reverse engneers orth produts untl t reahes a state where t an tself nnovate. Asde from tehnal sklls, t must also norporate management and ommeral sklls. mtaton s based on the prnple that t osts relatvely less than nnovatng. Knowledge transfers may be nreased or mpeded by: - mtaton of exports of senstve tehnologes (see mltary 4 - Dffulty of mplantaton of multnatonals n the outh - Blokng aess to the aptal of orthern gants by the outh aptal, through proteton measures and government nterventon 5. - Restrtng emgraton of managers to the outh, and of qualfed laborers to the orth - trengthenng ntelletual property rghts n the outh 2 outh stands for developng ountres lke nda and Chna, orth stands for the mature developed ountres. 3 Ahm-Data model wll be explored further down below. To the dfferene of our assumpton here, knowledge aptal s not assmlated from one ountry to another through aptal transfer and foregn nvestment, but though exports. 4 The UA has passed legslaton regardng senstve tehnologes, ndustres. 5 ee the ase Arelor-Mttal steel. 19

20 - Government subsdes to nnovaton n the orth and outh - The relatve quanttes of orth and outh aptal - The relatve easness of opyng versus mtatng. - The rate of assmlaton of one regon s nnovaton nto the aptal of the other n addton to Grossman and Helpman, we reate a model whh allows the outh to beome an aomplshed nnovator n ts own rght, and ntrodue the eventualty of the orth that wll mtate. Moreover, we model the rate of assmlaton, to the dfferene of Paul evne et al., wth the transfers of aptal from the outh to the orth and ve-versa, amountng to the degree n whh the aptal s ntertwned. We assume that takng ontrol of a ompany leads by some measure to an arued rght n deson makng and grants aess to ts tehnology 6. Fnally, the more the aptal s ntertwned the hgher the rate of assmlaton. The lower the parameter a/a s, the easer t s to opy rather than nnovate n the outh. Thus for suffently low κ and a/a (low assmlaton and low ost of opyng, a regon of mtaton domnates. For an ntermedate range, a regon of both nnovaton and mtaton domnates. Fnally, a hgher range produes a regon of prnpal nnovaton Dans de adre de la onurrene ord-ud, omme dans les modèles Ahm-Dta 7, le ud rengéne les produts qu l mporte du ord usqu'à e qu l attegne un etat ou l pusse nnover de son propre hef. Ms a part les ompétenes tehnques, l dot norporer des ompétenes manégarales et ommerales. mter est base sur le prnpe que ela oûte mons her qu nnover. es transferts de onnassanes et savor-fare sont aélères ou restrents par: - a lmtaton des exportatons de tehnologes sensbles (mltares 8. - a dffulté d mplantaton des multnatonales au ud. - e bloage de l aès au aptal des géants du ord au aptal du ud, par l ntermédare de mesures de proteton et l nterventon des gouvernements 9. - a Restrton de l émgraton de Managers vers le ud, et de travalleurs ompétents vers le ord. - a mse en vgueur et applaton des drots de la proprété ntelletuelle au ud. - es subsdes gouvernementales a l nnovaton au ord et au ud. - es quanttés relatves de aptal (ou ndfféremment, onnassane, aptal human a la Romer au ord omme au ud. - a falte relatve d mter plutôt que d nnover. - e taux de pénétraton de e aptal éonomque ou human d un pays a l autre. 6 Aqurng and Buyng out ompettors, n a rae for tehnologal leadershp. 7 Ahm-Data model wll be explored further down below. To the dfferene of our assumpton here, knowledge aptal s not assmlated from one ountry to another through aptal transfer and foregn nvestment, but though exports. 8 The UA has passed legslaton regardng senstve tehnologes, ndustres. 9 ee the ase Arelor-Mttal steel. 20

21 En omplément a Grossman et Helpman, nous réons un modèle qu permet au ud de devenr un nnovateur de son propre hef, et ntrodusons la possblté que le ord pusse mter le ud. De plus, nous modélsons le taux de pénétraton, a la dfférene de Paul evne et al., non omme varable exogène, mas endogène aux transferts de aptaux du ud vers le ord et ve-versa, a d le degré auquel le aptal est nternatonalse. ous estmons que la prse de ontrôle d une soété amène a un drot partpatf aux prses de déson, et dans l aesson a sa tehnologe 10. Par alleurs, plus le aptal est nternatonalse et plus le taux de pénétraton du aptal d un pays vers l autre est fort. Plus le rato a/a est bas et plus l este fale de oper que d mter au ud. Ans, for un taux κ (taux de pénétraton suffsamment bas et de même pour a/a, une régon d mtaton domne. Pour des valeurs ntermédares, la régon mte et nnove. Enfn pour des valeurs élevées, la régon se spéalse dans l nnovaton. d. The model: There are two regons: orth and outh. Both eonomes onsst of a monopolst ompettve produton setor and a ompettve setor ondutng R&D. n varetes were nvented and are now produed n the orth. n are produed n the outh and of these n orgnated n the outh from nnovaton and n were oped from the orth (where the subsrpts and represent nnovaton and opyng respetvely. The same s respetvely true for the outh. Thus the total number of varetes avalable to onsumers n both regons s n = n + n = n+n + n+ n. The elastty of substtuton n ountry orth ε=1/(1-α where α s the taste parameter, and β n the outh. The reason why we may dfferentate between the two markets elastty substtuton s that: Even though t my be freely deded that produts be produed n ether ountres through deloalzaton or foregn dret nvestment, these produts may not be freely onsumed beause of trade barrers, quotas, produt dfferentaton adapted to the loal market. Therefore markets n the orth and outh are learly segmented. As a tradtonal result of the ross ndustry and wthn ndustry stat optmzaton we fnd x... E n o p p 1 ' d' ( 0, n... or... n] x... E n o p p 1 ' d' (1 A novel feature s the ntroduton of aptal asde from labor as a fator of produton. ndeed, we onsder that another means to aqure knowledge, apart from reverse engneerng s to aqure partpatons n a frm s aptal. To translate ths argument, we shall reason as a multnatonal whh hooses to nvest: A ertan part of ts aptal n the orth and the outh 10 Aqurng and Buyng out ompettors, n a rae for tehnologal leadershp. 21

22 A ertan perentage of ts workfore n the orth and the outh Reah or Mantan nnovatve and produton based roles for both the orth and outh The board wll optmze the maxmum value of the frm. et us assume by default that n blo b (orth or outh, the frm belongng to the multnatonal produes wth one unt of labor, and outh aptal; let us assume that a smlar proess ours n blo a, wth orth aptal. Then the operatng proft of the multnatonal produng varetes n blo b and varetes n blo a would be gven by: nn ( p w x rn Kn ( p w x rs (1 Kn where rn and rs are the remuneraton of orth and outh aptal nvested n the frm. ns The multnatonal s proft maxmzng pre and profts subet to demand gven by (1 gves: p p w / and p p w / where α, β are loal orth and outh elasttes of substtuton. ndeed, the taste parameter s beng appled to produts avalable loally, as produts avalable abroad may not be aessble to eah segregated market s onsumers. We now assume that the aptal s ntertwned n a proporton a, b. Therefore, proft of the multnatonal beomes: ( w / w x rn a * Kn (1 a * (1 Ks nn b(1 Kn (1 b * Ks ns ( w / w x rs (5, 4, 3, 2 The nvestments made by the multnatonal take the form of dret foregn nvestment, deloalzaton. uh an nvestment from abroad ontrbutes to the eonom growth as s wdely beleved among polymakers 11 ; ndeed, t grants aess to new tehnologes, new dstrbuton platforms for produts, new management sklls. Followng Grossman Helpman, we dstngush the orth-outh relatve wage gap: w w w n ase of a small ost advantage and w w for a wder gap. Havng two dfferent taste parameters β, α, we modfy the equlbrum to be: w w w w n ase of a small ost advantage and w w ase of a large gap n nternatonal wages. w n The multnatonal s ompetng aganst loal ompettors or another multnatonal. n ase of a wder gap, the multnatonal may harge ps= w/α. Otherwse, lmt prng wll lead to ps=w. ow onsder the R&D setors: 11 Foregn nvestment ontrbutes to eonom growth 22

23 The rate of produton of new goods n the orth and the outh, the transfers of produton through opyng, from the outh to the orth and from orth to the outh are gven by: n n (6 n n n n Ks / Ks / Ks / Kn / n n Kn / Kn / The assumpton a < a aptures the dea that opyng s easer than nnovaton for a gven stok of knowledge aptal. The general dea s that eah atvty n the R&D setor gves rse to both a new blueprnt and an addton to soety's stok of knowledge aptal, whh ontans new deas and nformaton that wll be useful to later generatons of nnovators and n our ontext, mtators. We are assumng that knowledge aptal s proportonal to the densty of varetes n the populaton n suh as way that the sale effet omng from larger ountry s szes dsappear due to oeffent θ. n order to have a none zero nnovaton growth rate n ether the outh or the orth, t s neessary to norporate a spllover effet. Here, the spll-over effet s beng affeted by the aptal porton nvested n the orth and the outh. A general representaton for nnovaton knowledge aptal (norporatng the densty as outlned above s the followng, adapted from Grossman & Helpman (1990: n our ase, these equatons are dfferent sne the orth opes and mtates and sne THE RATE OF AMATO DEPED O THE PART OF THE ORTH AD OUTH CAPTA VETED. 23

24 κ nreases as the Foregn part of outh aptal nvested n the orth nreases and ve versa. n a perfet world wth freedom of aptal movement, κ = nf The equatons beome: K / [ n, n, / n, ] (8,7 K [ n, n, / n, / ] We take to be a(1-a and to be b(1-b. Therefore the desons by the multnatonal to nvest abroad affet aptal assmlaton rates. Clearly ths formulaton wth populatons szes n the denomnator remove sale effets. Whle the assmlaton rate depends on how well evenly the orth and outh aptal s spread n the orth and the outh s frms. et us onsder the fnanal setors, and the values of nnovators and mtators to be: V,, v, and v, v, A new blueprnt s ost n the orth (outh, depends postvely on the dffulty of nnovaton and negatvely on the amount of knowledge aptal n the orth (outh. Therefore: v w a / K v w a / K v w a / K v w a / K (9 n the orth, the typal frm n produton wll be oped by the outh n tme nterval dt wth the probablty n / n dt Ths gves the no-arbtrage ondton whereby the multnatonal operates an arbtrage between nvestng n rsk less bonds, nnovatve and mtated goods. / (10, 11 v v / v r / v v / / v v / v r / v v / v v The model s losed wth a labor market equlbrum ondton for eah regon wth produers, nnovators dynam equlbrum and onsumer s stat equlbrum: n x n x a / K n a / K n 24

25 (12 n x n x a / K n a / K n Before desrbng the equlbrum n dfferent phases of nnovaton and mtaton, let us examne the effet of proft maxmzng on the nnovaton. et us desrbe the equlbrum n four phases of development and then desrbe the effet on the transton between the four dfferent phases of the multnatonal s hoes of nvestment n the outh aptal and n the orth aptal. We frst want to analyze the mpat of the realloaton of aptal due to proft maxmzng onto respetve ountres knowledge aptal, or more presely respetve ountres nnovatons. Optmally, the maxmzaton of the knowledge aptal n eah ountry would lead to maxmze the expresson n the knowledge aptal n ( 1.. or.. s (1.where ths expresson s the rate of assmlaton of one s ountry knowledge aptal by the other. We would fnd 0.5 as the optmal value for eah ountry. How about after the proft maxmzaton? We obtan: ( p w nn nn ( p w x x rn rn b[ n a[ n n n / n a(1 a n / s b(1 b n / s] (1 a[1 ( n / n] (1 b [1 ( n n n / s b(1 b n / s a(1 a n / / s] (13 We learly see that maxmzng ths expresson n alpha amounts to the onluson that the both ountry optmzaton s equal to one ountry s optmzaton of knowledge aptal n whh ase we would have α=0.5 so as to maxmze the expresson n the knowledge aptal n a( 1 a.. or.. s b(1 b.where ths expresson s the rate of assmlaton of oune s ountry knowledge aptal by the other. Clearly here a. 5.. b.5.. doesn t satsfy the maxmzaton of ths equaton, taken nto onsderaton that numeral smulatons gve that: 2 2 (2a 3a n / s b( b 1 n / n (2b 3b n / n a( a 1 n / s 25

26 Where ths expresson s the result of dfferentaton by a, b and settng the equatons f (a and f (b =0. We don t fnd a, b=0.5 to be optmal. Therefore nertal fators suh as populaton sze, urrent setor lead, and wages dfferene wll dede on the rato of a,b whh s optmal for the multnatonal but not optmal for one of the host ountres. Proposton 1: The ross ountry alloaton of knowledge aptal through nternatonal nvestment does affet the nternatonal equlbrum of nnovatons. We observe frst that n ase the knowledge aptal n the orth should have nreased, to mantan a onstant proft, the multnatonal should have re-equlbrated ts portfolo wth more of b and less of a, or more of a and less of b dependng on the rato of knowledge aptal between the orth and the outh. eond, we observe that f the dfferene n populaton sze s large and f the gap between the orth and the outh s a large gap, then a wll be negatvely affeted and b postvely affeted by an nrease n these dfferenes. We next set out to study one of the 4 phases of development. The phase wth mtaton only n the outh s obtaned wth n,s=0 and suppressng the arbtrage ondton (11. The phase wth nnovaton only n the outh s obtaned wth n,s=0 and suppressng the other arbtrage ondton (11. Proposton 2: There s no wde-gap equlbrum wth both mtaton and nnovaton n the outh. ndeed, n suh a ase, where the outh s pre-domnant, t would fx the same pre for mtated or nnovatve goods; but sne outhern nnovaton s more ostly than n the orth, the outh would have no ratonal to nnovate. et us now onsder the ase where there s a narrow-gap wth both nnovaton and mtaton n the outh, and both nnovaton and mtaton n the orth. Usng the demand equaton and prng equatons and the expresson of profts, gnorng the effets of aptal realloaton between ountres, and gnorng the dfferenes between the tastes parameters and elastty of substtuton due to segmentaton of markets, we would obtan: 26

27 x / x ( p / p ( w / w where both ondut lmt prng to adapt to the orgnal leadng edge ompettor s pre, that s one harges wn/α and the other harges wn, to evt the former. x / x ( p / ( p x / x ( p / p ( w / w ( x / x ( p / p ( w / w (14 K s the rato of knowledge aptal. et k [ ak (1 a(1 K ]/[ bk (1 b(1 K ] n steady state, produt shares and k are onstant, and the total market value for eah produton setor s onstant. Therefore we obtan the expresson K f ( K, k, a, b (14bs Usng (19, (8 and (7 (6 (12we may determne that the values of a, b n steady state depend on the number of steady state nnovaton and mtaton ndustres, on populaton dfferental, on wage dfferental and not on aptal prevously aumulated. Proposton 3: n steady state, the desons of nvestng abroad are not taken on a bass of the dfferental of aptal knowledge, but on the bass of populaton dfferenes, and relatve number of edge setors, and due to the dfferental n wages: A postve dfferental of populaton for the outh wll eters parbus nrease the proporton of orthern aptal nvested n the outh and derease the proporton of outhern aptal nvested n the orth. A postve dfferental of nnovatve setors for the outh wll eters parbus derease the proporton of orthern aptal nvested n the outh and derease the proporton of outhern aptal nvested n the orth. et us agan as we dd for the dfferent elasttes of substtuton, wthdraw the onsderaton that orthern aptal and outhern aptal mx to produe greater assmlaton rate, to fous on the four phases of development. ow let us ntrodue some more notatons: et w w / w (terms of trade of nnovatve goods. (15 et n / n... n / n... n / n... n / n... (16 27

28 et et / n n be the rate at whh the outh opes the orth. (17 d / n n be the rate at whh the orth opes the outh. (18 n steady state, n / n n / n n / n n / n n / n g (18bs sne produt shares are onstant. Moreover, sne the total market value of eah produton setor s onstant, g v / v v / v v / v v / v Consderng that the populatons are the same sze, we obtan usng (6 (7 and (8: [ n.. n ]*[1... b(1 b] [ ( n...[ a(1 a...1] From whh: n n...[ ( n n n ]] [ n.. n ] [1... b(1 b] 1...[ a(1 a...1] [ ( n n n...[ ( n n n ]] Gvng: 1 ( g ( n n n a(1 a (19 Where learly ths beomes 1 ( g (1 n a(1 a. ext, we dfferentate K wth respet to tme, usng the defnton and settng k=0 at steady state gves the steady state of k: ks / kn ks / kn Resultng n: k ( n n C t ( tto ( tto / s [ e n e n n ] (20 nf obtaned after we have derved nsde the ntegral and on the ntegral tself. Thus, replang n, n, n we obtan: k 1. g /( g (21 C t nf n the steady state, we have r r. Combnng the no arbtrage ondtons (10,11 (2,3,4,5 wth 14 and (18bs we get a relatonshp between : 28

29 [ [ [ [ / v / v / v / v ]/[ ]/[ ]/[ ]/[ / v / v / v / v ] ] ] ] (22 We then equate the frst two relatons and the next two relatons.(23 Fnally puttng together these equatons (19, (21, (22, (23, we obtan together wth the steady state of the labor market ondton (12 yelds 9 equatons for the steady states of the nne endogenous varables k,,,,, w, g, d, To examne the possblty of transton between the three equlbrum of ( outhern mtaton only, ( outhern mtaton and nnovaton and ( outhern nnovaton only, ( t s useful to thnk n terms of hanges n the parameters a/a and kappa, refletng the relatve ost of opyng and the speed at whh the outh absorbs knowledge aptal from the orth. The boundary for the outh between mtaton only, and nnovaton and mtaton s the values of a/a and kappa suh that =0. The boundary for the outh between mtaton and nnovaton, and nnovaton only s the values of a/a and kappa suh that =0=. The boundary for the orth between nnovaton, and nnovaton and mtaton s the values of a/a and kappa suh that =0=d. 29

30 30

31 . A theory on Human Captal versus mmgraton: The effet of obs deloalzaton from the orth to the outh s to push wages up of sklled workers n the orth and the outh and nrease the stran on the pool of sklled workers n the orth and the outh. As outh eonomes onverge towards those of the orth, standards of lvng n the outh may nrease more relatvely than n the orth, onsderng that non tradable goods do not ath up qute as fast. Ths hypothess s not taken nto aount nto today s lterature and we have tred to aount for ts effets. ext, klled workers aordng to standard orth-outh models supposedly would be maxmzng ther utlty aordng to the quantty of goods they may onsume rrespetvely from the orth or the outh. et us dfferentate between a sklled ultural fator and a sklled non ultural fator. The proess of deloalzaton an be seen as deloalzng only the omponent whh s not ultural n a produt. ndeed, the ultural fator wll be the desgn orrespondng to the loal taste. Aulturaton s a proess whh s takng plae durng the deloalzaton proess. Just lke produts are reverse-engneered, the ulture s reverse-engneered n suh a way that the pool of orth ultural sklled workers n the outh nrease relatve to the pool of non ultural sklled workers. t means that the outh workers who beome ultural adopt more expensve ustoms, lfestyles and fnd t more attratve to move to the orth where they have aess to better qualty produts. At equlbrum, the utlty of orth and outh sklled workers must be the same. Yet, beause the ost of lvng n the outh remans lower than n the orth, sklled workers n the outh are ready to aept a lower salary, to stay n the outh. Therefore, wth ontnued deloalzaton, the fat that there are non tradable goods that do not ath up as fast as other goods may ndue sklled workers from the orth to ome bak to the outh. Whle a ounter fator would nrease the relatve ost of sklled non ultural workers n the outh, sne ts aulturaton, reates for the worker new needs and expetaton, and t therefore may redue deloalzaton. Ths argumentatve may lead mult-natonals to reonsder nvestng abroad, sne ther nvestment wll ndue aulturaton and therefore deplete ther pool of avalable resoures n the outh and therefore nrease ther osts. Ths leads learly to the proess of endogenous qualfed labor mgraton. 31

32 V. orth outh models and Exhange rates: We are gong to study a very bas framework of orth outh models n whh we wll attempt to ntrodue exhange rates: We follow the usual model of vertal ladder ( s n[ onstrant M (, s nd xm(, s] dd... under Es xm(, s pm(, s dd... and sne M(,s s the M qualty good at tme t, m0 m mo / pmo / when mo s the least qualty, the value of the obetve m0 pm beomes mo E(, s / Pmo Ths s the result of the stat ntra-ndustry optmzaton. Dynam optmzaton leads to : 1 n( Es ds ( Es E(, s ds eadng to E 1/ and 0 n( Es ( ra w. E H= leads to / r 1 0 Produton: We follow the produt yle dea by Vernon 1966, exept that the equlbrum ws wn ws beomes R ws wn Rws where R s the real exhange rate between the orth and the outh, and where ths equlbrum s beng used to dsrmnate leaders, followers and mtators n the orth and the outh, Followng the defnton of the Real Exhange Rate, R=.Ps/Pn Here Ps ( ws. ( wn (1 ( ws. -Where the 3 setors are a non tradable setor ψ, tradable and non monopolst setor ω, tradable and monopolst setor 1- ψ ω. Pn ( wn. ws. (1 ( ws. -Where the 3 setors are a non tradable setor ξ, tradable and non monopolst setor φ, tradable and monopolst setor 1- ξ φ. ndeed, some goods are tradable and some are not, yet the purhasng power of urreny must be equvalent on both the tradable and non tradable goods. et us take R=Ps/Pn and =1, the equlbrum beomes: Ps / Pn ws wn. Ps / Pn. ws 32

33 ws[ ( ws. ( wn (1 ( ws. ] [ ( ws. ( wn (1 ( ws. ] ws wn ( wn. ws. (1 ( ws. ( wn. ws. (1 ( ws. Ths s equvalent to: ws[. ws. wn (1 ( ws] wn [ ( wn. ws (1 ( ws] [ ( ws ( wn (1 ( ws] ws Ths relaton leads to after developng the terms and addng both unequal relatons: ws (. wn ( (1 (1. / 2 2 We fnd that an nrease n ws, leads to a derease of ( (1 (1., a derease n non tradable n the outh and an nrease of non monopolst tradable. A a futher top of researh, we would lke to norporate the effets of readustng exhange rates on qualfed labor mgraton patterns. 33

34 V. A Revew: Push-Pull Mgraton aws Followng the dea of aulturaton whh may be seen as an nentve or even a neessty for outh sklled workers to mmgrate, a model of mgraton has been developed. ne the Geographer s Ravensten deas, mmgraton s the resultant of a push and pull fators dsounted by a dstane deterrene between the plaes. Push stands for loal dssatsfaton whle pull stands for foregn attraton. M = (R + E / d, Movement M, Repulson R, Entng E, Dstane Fator d Aggregatng ths equaton over r plaes gves: Where O and are n-sums and Out-sums. A true push fator mght be a hgh unemployment rate, whose ost s yet redued by the heavy nertal ost of leavng frends and famles. The overall push fator may even be negatve. n the same way, an attratve plae may have a large postve Push value (ee V. A Revew: OVATO, MTATO AD TEECTUA PROPERTY RGHT: TRODUCG MGRATO HEPMA MODE Debass Mondal and Manash Ranan Gupta ntrodue nternatonal labor moblty nto the Helpman(1993 orth-outh model. They analyze the effet of strengthenng the ntelletual Property Rghts (PR proteton n the outh on the rate of produt nnovaton n the orth and on the orth-outh relatve wages. Two ases are dfferentated: n one ase outh based mtated produts do not ontrbute to the knowledge aptal n the orth and n the other ase they do ontrbute. n the frst ase, the strengthenng of PR must produe a postve effet on the rate of nnovaton. n the seond ase, ths postve effet may be obtaned ne the 1994 GATT onferene, n Marrakeh, the developed ountres agreed some form of free trade wth developng ountres as long as the latter kept a tght regulaton on ntelletual property rghts. The orth-outh models are based on the Grossman and Helpman (1991a, 1991b Produt varety framework and qualty ladder framework. 34

35 These models onsder that nnovaton takes plae n the orth and mtaton n the outh, and assume a steady growth rate. n the 1993 model and n a 1998 or Hassan 2005, mtaton rate s exogenous, proportonal to the number of goods mported from the orth and reverse engneered for nstane. Grossman and Helpman (1991b dd not onsder the mult natonalzaton of orthern frms and n ther model mtaton s assumed to be dret. n a (1998, the outhern frms an mtate only after mult natonalzaton of the orthern frms. Moreover, n Grossman and Helpman, more PR n the outh leads to a fall n nnovaton n the orth. Fnally, ontrary to a 1998, the rate of mtaton wll fall due to stronger PR proteton f mult natonalzaton s the hannel of produton transfer. Dollar(1986 n hs orth-outh model of produt yle assumes the absene of nternatonal knowledge spllover though he does not analyze the effet of strengthenng PR on the endogenous growth rate. n ths ase the outhern produts do not ontrbute to the knowledge aptal formaton n the orth. Baldwn et. al.(2001 also onsders a smlar ase. The Model: The level of mgraton vares postvely wth the orth-outh relatve wage. As opposed to Helpman(1993 who has shown that the strengthenng of PR n the outh lowers the rate of nnovaton n the orth, the model shows that the poly of strengthenng of PR n the outh must rase the rate of nnovaton n the orth n the absene of nternatonal knowledge spllover and may rase t n the ase of perfet nternatonal knowledge spllover. Model: The representatve onsumer n the orth maxmzes ts welfare subet to nter-temporal budget onstrant: U s a C.E.. n(t are varetes avalable whle x s the level of onsumpton of the zth varety. Dynam Resoluton gves 35

36 Whle stat olvng gves: and Taken under the budget onstrant: x( p( Here n 0, sne the orth s a proft maxmzng aptalst whle the outh s a Bertrand Competton player. Here, the volume of mgraton depends on relatve orth outh wages where f(w and f (w >0. Therefore AD w = w/w n the orth, the abor Market s Of employees nto the produton of the orthern varetes and n Researh. ne mtaton s ostless,. The outh onsumer operates the same maxmzaton under hs own utlty, budget onstrant, and does not operate dynam alloaton sne there s no R&D, all savngs go to the onsumpton of new varetes as the mtaton ost s null. They fnd an aggregate demand to be 36

37 Therefore and Here the man knowledge spllover s knowledge aptal. 1 orresponds to Helpman whle =0 orresponds to Dollar. where the numerator s the Fnally, And n / t m * n where m = m* -µ s (ost of developng a blue prnt. The no-arbtrage ondton s Conlusons of steady growth: Expressng,,, allows to solve for f lambda =0 and f lambda = 1. 37

38 Tankng lambda =0, At steady state, and t s a saddle pont. Dfferentaton wth respet to m we fnd that and sne, <0. And < 0. Proposton 1: More PR n the outh wll lead to a hgher share of n relatve to and nrease therefore orth s nnovaton. Moreover, more labor wll flow from the outh to orth due to the dfferental n wages. Takng lambda =1, we arrve to the onluson that: Proposton 2: For eonomes that are ntally n the steady state, a poly of strengthenng PR n the outh wll rase the rate of nnovaton n the orth f α -> 0 and wll lower t f α -> 1. As alpha tends towards 0, the monopolst may harge an nfntely hgh pre, redung the quantty produed n the orth and the manufaturng labor n the orth. However sne the relatve wage nrease n favor of the orth, the exess labor omng from the outh wll move nto the orth researh setor nreasng nnovaton. V. A Revew: Dnopoulos Model: t dfferentates an open (to trade orth and outh, versus a losed outh. Globalzaton s defned as a losed outh modfyng ts trade poly. How an the world ompete aganst suh ountres as Chna openng up wth an extensve and qualfed labor fore? Although deloalzaton s translated by a shft of produton to the outh, the orth produers also benefate from a larger global onsumer base, whle onsumers take advantage of lower pres and nreased ompetton. Whh effet domnates the evoluton of the relatve orth outh wage gap? Usng u( t 1 0 [ M (, s m0 d(,, t 1/ d / 1 ; A vertal qualty ladder utlty funton; J qualty produt n ndustry at tme t, where the exponental for tradues a wsh for hgher qualty produts. 38

39 Results are that globalzaton leads only to a temporary nrease n the global nnovaton rate, on the way to steady state. Yet opyng nreases permanently and so does the outh wage, relatve to the orth, sne although the orth has a hgher onsumer base, so does the outh. A seond effet s the nrease n PR whh dereases (orth nnovaton on the way to steady state, and dereases mtaton and therefore the outh wage relatve to the orth. V. A Revew: A Theory of defensve kll-based nnovaton and Globalzaton Mathas Thoeng, Therry Verder klled labor ntensve tehnologes are the response of frms to globalzaton and ndued nreased threats of leapfroggng. The artle shows that ths proess generates an nrease n wage nequaltes n both regons (orth-orth Trade or orth-outh Trade. (2 Where l/k stands for sklled labor adusted to human aptal and h would be non sklled labor. K takes values 1 or s>1 aordng to the ntensty of skll requred n the tehnology. (3 The ost funton for s s hgher than for K=1.Yet some frms wll stll be ndued to use ths tehnology as a result of trade ntegraton. The rato of the mnmzaton of the margnal ost of the unsklled and sklled workers gves the optmal rato: (4 Hene tehnology s s ntensve that tehnology K =1. more skll Gven that depreaton; ase where k=1 And (rate of aptal pror more effent than based tehnal hange., t follows that neutral tehnal hange s a uppose that n a setor, the numbent produes a good wth tehnology k=1. A new monopoly uses lmt prng. 39

40 n the frst ase, both frms use the tehnology K = 1, ash flows are gven by wth a orrespondng Bellman equaton n the seond ase, they use dfferent tehnologes s and k=1 wth a orrespondng ash flow of. And the orrespondng Bellman equaton wthout leapfroggng s by nnovaton θ. (s ndependent on the loss that would be aused Heneforth, defensve skll based nnovaton depends on Vst < Vlt. et the probablty of nstantaneous dsovery be teta and ost *teta. Free entry nto the R&D setor ensures that Where (5 the effort n R&D s onentrated on the k=1 ndustres, the others not requrng R&D beause not rskng ompetton. The dynams of alpha s (6 (the effort wll derease f the lkelhood of nnovaton nreases and f the value of skll based produton nreases, sne t allows to be proteted from nnovatonal hanges or leapfroggng (7 The wage premum q/w = H/ s shown to be dereasng wth alpha and dereasng wth alpha. the relatve ost s also 40

41 et us analyze steady state: omputng Vs and Vl s straghtforward and holds. Equvalent to (8 Ths fgure represents a negatve relatonshp between alpha and theta, meanng that a hgher lkelhood of nnovaton wll redue the effort n R&D. t represents the no bas ondton (8, the researh resoure onstrant (5. Trade ntegraton leads to a larger endowment (n ountres, and the researh resoure onstrant moves up rght leadng to a lower equlbrum of nnovaton effort X. A Revew: Globalzaton and gans from varety: Chrstan Broda and Davd Wensten show n the path of Krugman (1979 that the nrease n the number of mported varetes has been by a fator of four and that suh ontrbuted to muh of the gans from trade. Moreover, estmatng dfferent elasttes of substtuton aross ndustres, through tme, they obtan a pre ndex and an upward bas n the onventonal pre ndex of 1.2% per year (adustng for new varetes, mport pres have been fallng 1.2 perent per year faster. As suh, ths nrease n mported varetes has ontrbuted to 2.8% of the U GDP n the last 30 years. Frst, onsumers have low elasttes of substtuton aross smlar goods produed n dfferent ountres; whh proves the valdty of Dxt-tgltz (1977 framework valung varety. How an a pre reflet varety? 41