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Knowledge-Capital Meets New Economic Geography

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Author Info
Peter Egger ()
Stefan Gruber ()
Mario Larch ()
Michael Pfaffermayr ()

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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 ? - ?L-space (? - ?S-space) for country i firms and all four scenarios of firm regimes. Third, we illustrate how changes in the parameters ?, ? and ? affect the outcome. Finally, we analyze how the asymmetric endowment with the immobile factor influences the core-periphery patterns.

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Paper provided by CESifo GmbH in its series CESifo Working Paper Series with number CESifo Working Paper No. 1432.

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Date of creation: 2005
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Handle: RePEc:ces:ceswps:_1432

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Related research
Keywords: knowledge-capital model new economic geography unskilled labor mobility skilled labor mobility

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Find related papers by JEL classification:
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
R12 - Urban, Rural, and Regional Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
R13 - Urban, Rural, and Regional Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies

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  2. Ciccone, Antonio, 2002. "Agglomeration effects in Europe," European Economic Review, Elsevier, vol. 46(2), pages 213-227, February. [Downloadable!] (restricted)
    Other versions:
  3. Constant, Amelie & Massey, Douglas S., 2003. "Labor Market Segmentation and the Earnings of German Guestworkers," IZA Discussion Papers 774, Institute for the Study of Labor (IZA). [Downloadable!]
  4. Gianmarco I.P. Ottaviano & Giovanni Peri, 2005. "Rethinking the Gains from Immigration: Theory and Evidence from the U.S," NBER Working Papers 11672, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. repec:att:wimass:192037 is not listed on IDEAS
  6. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany. [Downloadable!]
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  7. Raybaudi-Massilia, Marzia, 2000. "Economic Geography and Multinational Enterprise," Review of International Economics, Blackwell Publishing, vol. 8(1), pages 1-19, February. [Downloadable!] (restricted)
  8. John Kennan & James R. Walker, 2003. "The Effect of Expected Income on Individual Migration Decisions," NBER Working Papers 9585, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Mary Amiti, 1999. "Specialization patterns in Europe," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 135(4), pages 573-593, December. [Downloadable!] (restricted)
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  10. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June. [Downloadable!] (restricted)
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  11. Markusen, James R. & Venables, Anthony J., 1998. "Multinational firms and the new trade theory," Journal of International Economics, Elsevier, vol. 46(2), pages 183-203, December. [Downloadable!] (restricted)
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