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Knowledge–capital meets new economic geography

Author

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  • Peter Egger
  • Stefan Gruber
  • Mario Larch
  • Michael Pfaffermayr

Abstract

We incorporate the now standard knowledge-capital model of multinational firms in a new economic geography setting. The theoretical predictions of our model suggest that unskilled labor mobility leads to less concentration of production than skilled labor mobility does. This is in line with empirical evidence that agglomeration of production among European nations is less pronounced than among US regions. Our model shows that the different patterns in labor mobility can explain actual differences in the spreading of industries. According to our welfare analysis, trade liberalization is likely Pareto-improving for a larger (smaller) country with mobile unskilled (skilled) labor. In the supplement, we investigate the sensitivity of our results in several respects. In the first section, we provide the figures of real factor rewards for the trade liberalization scenarios discussed in and underlying Figures 7 and 8 of the paper. Second, in Figures 3(n) - 5(v) (6(n) - 6b(v)) we infer the existence, or non-existence, of each firm type separately in the τ - λL-space (τ - λS-space) for country i firms and all four scenarios of firm regimes. Third, we illustrate how changes in the parameters μ, ρ and σ affect the outcome. Finally, we analyze how the asymmetric endowment with the immobile factor influences the core-periphery patterns.
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Suggested Citation

  • Peter Egger & Stefan Gruber & Mario Larch & Michael Pfaffermayr, 2007. "Knowledge–capital meets new economic geography," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 41(4), pages 857-875, December.
  • Handle: RePEc:spr:anresc:v:41:y:2007:i:4:p:857-875
    DOI: 10.1007/s00168-007-0129-3
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    Cited by:

    1. Stefan Gruber & Luigi Marattin, 2010. "Taxation, infrastructure and endogenous trade costs in new economic geography," Papers in Regional Science, Wiley Blackwell, vol. 89(1), pages 203-222, March.
    2. Huali Xiang & Jun Yang & Xi Liu & Jay Lee, 2019. "Balancing Population Distribution and Sustainable Economic Development in Yangtze River Economic Belt of China," Sustainability, MDPI, vol. 11(12), pages 1-15, June.
    3. repec:dau:papers:123456789/10605 is not listed on IDEAS
    4. Escobar Gamboa, Octavio Romano, 2009. "IDE entrants, exportations et productivité manufacturière : les différentes performances des régions mexicaines," Economics Thesis from University Paris Dauphine, Paris Dauphine University, number 123456789/3850 edited by Guillochon, Bernard.
    5. Gonzales-Eiras, Martín & Niepelt, Dirk, 2004. "Sustaining Social Security," Seminar Papers 731, Stockholm University, Institute for International Economic Studies.
    6. José M. Gaspar, 2018. "A prospective review on New Economic Geography," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 61(2), pages 237-272, September.
    7. Octavio Escobar, 2011. "The location pattern of FDI in Mexico after NAFTA," ERSA conference papers ersa10p804, European Regional Science Association.
    8. Adolfo Maza & Paula Gutiérrez‐Portilla & José Villaverde, 2020. "On the drivers of UK direct investment in the Spanish regions: A spatial Durbin approach," Growth and Change, Wiley Blackwell, vol. 51(2), pages 646-675, June.
    9. Stefan Gruber, 2010. "To Migrate or to Commute?," Review of Economic Analysis, Digital Initiatives at the University of Waterloo Library, vol. 2(1), pages 110-134, January.

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    More about this item

    Keywords

    F12; F23; R12; R13;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies

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