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Trade and location: A moving example motivated by Japan

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  • Deardorff, Alan V.

Abstract

If trade costs matter for trade, and if distance matters for at least some trade costs, then location matters for trade. This may be especially important for Japan, given its distance from other developed countries and proximity to a number of developing countries. This paper explores the relationship between location and trade in a simple partial equilibrium model of a single homogeneous good that may be produced and traded by three countries located on a plane. Six equilibrium regimes arise in this model, depending on trade costs compared to differences in autarky prices. The results are the following: For a country whose autarky price lies between those of the other countries, it will export the good if it is close to the high-cost country, import it if it is close to the low-cost country, and not trade it at all if it is too far from both. The location of such a country is also important for the trade of the other countries. Finally, although a fall in trade costs increases, up to a point, the geographic scope for a country to trade, beyond that point it cannot make trade possible for an intermediate-cost country that is too remote to trade. The results suggest that Japan, with factor endowments similar to other developed countries but located closer to many developing countries, should dominate trade with its developing-country neighbors.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of the Japanese and International Economies.

Volume (Year): 19 (2005)
Issue (Month): 2 (June)
Pages: 169-193

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Handle: RePEc:eee:jjieco:v:19:y:2005:i:2:p:169-193

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Web page: http://www.elsevier.com/locate/inca/622903

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  1. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 691-751, September.
  2. Obstfeld, Maurice & Rogoff, Kenneth, 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," Center for International and Development Economics Research, Working Paper Series qt0sx02651, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  3. Donald R. Davis & David E. Weinstein, 1998. "An Account of Global Factor Trade," Harvard Institute of Economic Research Working Papers 1849, Harvard - Institute of Economic Research.
  4. Trefler, Daniel, 1995. "The Case of the Missing Trade and Other Mysteries," American Economic Review, American Economic Association, vol. 85(5), pages 1029-46, December.
  5. James E. Anderson & Eric van Wincoop, 2000. "Gravity with Gravitas: A Solution to the Border Puzzle," Boston College Working Papers in Economics 485, Boston College Department of Economics.
  6. Peter A. Petri, 1993. "The East Asian Trading Bloc: An Analytical History," NBER Chapters, in: Regionalism and Rivalry: Japan and the United States in Pacific Asia, pages 21-52 National Bureau of Economic Research, Inc.
  7. Alan V Deardorff, 2004. "Local Comparative Advantage: Trade Costs and the Pattern of Trade," Working Papers 500, Research Seminar in International Economics, University of Michigan.
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