Divergence, Wage-Gap and Geography
AbstractWe develop a geographic growth model where nominal wages are allowed to diverge between the two considered countries. Removing the standard assumption entailing that both countries always own a traditional sector, we argue that, as trade gets freer, the traditional sector of one country might cease to exist so that wages increase: it gives rise to an additional dispersion force independent of trade costs. Hence, the core-periphery outcome might never be reached, which contradicts previous literature’s results. We also question a hallmark of the literature since we argue that full agglomeration of firms might actually lead to slower growth for both countries.
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Bibliographic InfoArticle provided by CEPII research center in its journal Economie Internationale.
Volume (Year): (2006)
Issue (Month): 108 ()
Wage differential; new economic geography; endogenous growth; knowledge spillovers;
Find related papers by JEL classification:
- F15 - International Economics - - Trade - - - Economic Integration
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
- R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
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