We develop a two-country general equilibrium model where firms make separate choices about the location of R&D and high-tech production. There are two agglomeration forces: R&D spillovers and backward linkages associated with high-tech production. The latter tends to attract production to the...

This paper presents evidence that, in Europe, production of high-tech goods is attracted to large markets, while R&D activities tend to be located away from them. In order to explain this phenomenon, we develop a two-country general equilibrium model where firms make separate choices about the...