Paper #256

Title:

Employment protection, international specialization and innovation

Author:

Gilles Saint Paul

Date:

January 1996 (Revised: May 1997)

Abstract:

We develop a model to analyse the implications of firing costs on incentives for R&D and international specialization. The Key idea is paying the firing cost, the country with a rigid labor market will tend to produce relatively secure goods, at a late stage of their product life cycle. Under international trade, an international product cycle emerges where, roughly, new goods are first produced in the low firing cost country will specialize in 'secondary innovations', that is, improvements in existing goods, while the low firing cost country will more specialize in 'primary innovation', that is, invention of new goods.

Keywords:

Employment protection, innovation, R&D, international product cycle, labour market flexibility

JEL codes:

F12, F17, J21, J32, O3

Area of Research:

Macroeconomics and International Economics

Published in:

European Economic Review 46, pp 375-395

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