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  • P Krugman
  • Anthony J. Venables

Abstract

The paper considers the equilibrium location of two industries in two countries. Both industries are imperfectly competitive and produce goods which are used in final consumption and as intermediates by firms in the same industry. Intermediate useage creates cost and demand linkages between firms and a tendency for agglomeration of each industry. When trade barriers are high the equilibrium involves division of both industries between both locations in order to meet the final demands of consumers. At lower trade barriers agglomeration forces dominate the equilibrium involves specialisation, with each industry concentrated in a single location. Economic integration may induce specialisation. The paper studies the simple dynamics of the model and demonstrates that during adjustment processes a sizable proportion of the labour force may suffer lower real wages as relocation of industry occurs, although there are long run gains from integration.

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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0172.

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Date of creation: Oct 1993
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Handle: RePEc:cep:cepdps:dp0172

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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Cited by:
  1. Resmini, Laura, 2006. "Theoretical and Methodological Study on Comparative Advantages in Dynamic Growth Regions, Convergence and Inequalities Patterns," Papers, Economic and Social Research Institute (ESRI) DYNREG03, Economic and Social Research Institute (ESRI).
  2. Forslid, Rikard & Wooton, Ian, 1999. "Comparative Advantage and the Location of Production," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2118, C.E.P.R. Discussion Papers.
  3. FE, Doukouré Charles, 2010. "Réduction de Droits de Douane et Convergence Réelle dans l'UEMOA
    [Tariffs Reduction and Real Convergence in WAEMU]
    ," MPRA Paper 26763, University Library of Munich, Germany.
  4. Forslid, Rikard & Haaland, Jan I. & Midelfart Knarvik, Karen Helene, 2002. "A U-shaped Europe?: A simulation study of industrial location," Journal of International Economics, Elsevier, Elsevier, vol. 57(2), pages 273-297, August.
  5. Gordon H. Hanson, 1996. "U.S.-Mexico Integration and Regional Economies: Evidence from Border- City Pairs," NBER Working Papers 5425, National Bureau of Economic Research, Inc.
  6. Pitelis, Christos, 2009. "Foreign direct investment and economic integration," MPRA Paper 23938, University Library of Munich, Germany.
  7. Giulio Bottazzi & Giorgio Fagiolo & Giovanni Dosi, 2003. "Mapping Sectoral Patterns of Technological Accumulation into the Geography of Corporate Locations. A Simple Model and Some Promising Evidence," Computing in Economics and Finance 2003, Society for Computational Economics 268, Society for Computational Economics.
  8. Andrea Brasili & Paolo Epifani & Rodolfo Helg, 2000. "On the Dynamics of Trade Patterns," International Trade, EconWPA 0004006, EconWPA.
  9. Hemanta Shrestha & Dennis Heffley, 2003. "Regional Integration and Industrial Location in a Landlocked Spatial Economy," Working papers, University of Connecticut, Department of Economics 2003-07, University of Connecticut, Department of Economics.

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