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On the development strategy of countries of intermediate size—An analysis of heterogeneous firms in a multi-region framework

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  • Forslid, Rikard
  • Okubo, Toshihiro

Abstract

This paper compares two policies: trade cost reduction and firm relocation cost reduction using a three-country version of a heterogeneous-firms geography and trade model, where the three countries have different market (population) sizes. We show how the effects of the two policies differ, in particular for the country of intermediate size. Unless the intermediate country is very small, in a relative sense, it will gain industry when relocation costs are reduced, but lose industry when trade costs are reduced. The smallest country loses industry in both cases, but only experiences lower welfare in the case of lower relocation costs. Thus, the ranking of the policies from the point of view of the two small and intermediate countries tends to be the opposite.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 56 (2012)
Issue (Month): 4 ()
Pages: 747-756

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Handle: RePEc:eee:eecrev:v:56:y:2012:i:4:p:747-756

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Related research

Keywords: Agglomeration; Firm heterogeneity; Multi-country model; Trade liberalisation; Relocation costs;

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References

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Citations

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Cited by:
  1. Forslid, Rikard & Okubo, Toshihiro, 2012. "On the development strategy of countries of intermediate size—An analysis of heterogeneous firms in a multi-region framework," European Economic Review, Elsevier, vol. 56(4), pages 747-756.
  2. Biing-Shiunn Yang & Chao-Cheng Mai, 2013. "The impact of uncertain environmental regulatory policy on optimal plant location and anti-pollution technology selection," The Annals of Regional Science, Springer, vol. 50(3), pages 753-769, June.
  3. Richard E. Baldwin & Toshihiro Okubo, 2014. "International Trade, Offshoring and Heterogeneous Firms," Review of International Economics, Wiley Blackwell, vol. 22(1), pages 59-72, 02.

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