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Global Implications from a North-North-South Trade Model:A Biotech Revolution
Dave D. Weatherspoon, James F. Oehmke and Christopher A. Wolf_

The next millennium will witness tremendous change in the agricultural system. Biotechnology will allow us to study, design, and build new products that may not resemble agricultural products of the past. This new science is forcing the world s largest companies to reinvent themselves into what has become known as Life Science companies. These companies combine and synthesize knowledge from the pharmaceutical, biotech, agriculture, food, chemical, cosmetic, environmental, energy, and computer technology industries. The objective of life science companies is not to make breakthroughs in a single area but to become a dominant player in all (Enriquez, 1998). The trends of mega-mergers and strategic alliances are fairly clear in the corporate world, however, where these firms decide to locate in the future and the impact on the respective countries are not pellucid.

This paper will focus on the future impact of the restrictive biotech policies of the European Union on economic growth within the trading block.

Contemporary agricultural economics theory focuses on the impacts of innovations on markets and market participants. Taking market structure and innovation as given, these models are designed to calculate the effects of existing innovations on social welfare [e.g. Huang and Sexton, Am. J. Agric. Econ. 78(1996):558-571 or Moschini and Lapan, Am. J. Agric. Econ. 79(1997):1229-1242]. Regrettably, these models neglect the process of research and inventive activity that precedes innovation. Some important insights into dynamic research and competition among private-sector firms to discover next-generation innovations are found in the economics literature, such as Segerstrom (J. Polit. Econ., 99(1991):807-827), Dinopoulos (Osaka City Univ. Econ. Rev., Vol. 29, 1994), or Barro and Sala-I-Martin (Economic Growth, 1995). Endogenous growth resulting from research and development has been shown by Grossman and Helpman (Innovation and Growth in the Global Economy, 1991). Segerstrom, Anant and Dinopoulos (Am. Econ. Rev., 80(1990):1077-1091) applied the North-South model to economic growth and found that sequential innovation races resulted in economic growth. This paper builds on and extends the North-South models and the North-North model by Dinopoulos, Segerstrom, and Oehmke (Journal of International Economics, 34, February 1993, 49─71) and examines the evolution of trade patterns, innovation, and competitive advantage in bio─engineered products.

The Model:

Underlying this paper is a three─country model of R&D and innovation. A single South country has a comparative advantage in the production of low─skill goods, but allows unrestricted bioengineering and bio─engineered products. The two North countries have a comparative advantage in the production of high─skill products, including R&D and biotechnology products. One of the North countries allows bioengineering but with some restrictions; the second does not allow any bio─engineered products.

Among the anticipated results from the model are that restrictive biotech policies will result in slowed economic growth.

Dave D. Weatherspoon, James Oehmke and Christopher Wolf are assistant, associate and assistant professors of Agricultural Economics at Michigan State University, respectively.