HIGH-TECHNOLOGY-INDUSTRY TRADE AND INVESTMENT - THE ROLE OF FACTOR ENDOWMENTS

This paper develops a dynamic general equilibrium model of international research and development (R&D) competition based on the Heckscher-Ohlin structure of production. We analyze the model's unique steady-state equilibrium in which both R&D expenditures and the rate at which firms discover new superior products are constant over time. The model generates intraindustry trade. interindustry trade, product cycles and multinational corporations even when factor price equalization prevails across countries. These phenomena depend on factor endowments. In the absence of R&D incentives the model reduces to the familiar Heckscher-Ohlin model at each point in time.