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Knowledge-Capital Meets New Economic Geography

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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 - λ L-space (τ - λ S-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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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1432.

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

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

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References

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  1. Ciccone, Antonio, 2002. "Agglomeration effects in Europe," European Economic Review, Elsevier, vol. 46(2), pages 213-227, February.
  2. John Kennan & James R. Walker, 2011. "The Effect of Expected Income on Individual Migration Decisions," Econometrica, Econometric Society, vol. 79(1), pages 211-251, 01.
  3. Raybaudi Massilia, M., 1995. "Economic geography and multinational enterprise," Discussion Paper Series In Economics And Econometrics 9520, Economics Division, School of Social Sciences, University of Southampton.
  4. James R. Markusen & Anthony J. Venables, 1995. "Multinational Firms and The New Trade Theory," NBER Working Papers 5036, National Bureau of Economic Research, Inc.
  5. Barba Navaretti, Giorgio & Checchi, Daniele & Turrini, Alessandro Antonio, 2003. "Adjusting Labour Demand: Multinational versus National Firms- A Cross-European Analysis," CEPR Discussion Papers 3751, C.E.P.R. Discussion Papers.
  6. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany.
  7. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  8. Mary Amiti, 1997. "Specialisation Patterns in Europe," CEP Discussion Papers dp0363, Centre for Economic Performance, LSE.
  9. Gianmarco I.P. Ottaviano & Giovanni Peri, 2006. "Rethinking the Gains from Immigration: Theory and Evidence from the U.S," Working Papers 2006.52, Fondazione Eni Enrico Mattei.
  10. Ekholm, Karolina & Forslid, Rikard, 2001. " Trade and Location with Horizontal and Vertical Multi-region Firms," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(1), pages 101-18, March.
  11. Constant, Amelie F. & Massey, Douglas S., 2003. "Labor Market Segmentation and the Earnings of German Guestworkers," IZA Discussion Papers 774, Institute for the Study of Labor (IZA).
  12. Rosenthal, Stuart S. & Strange, William C., 2004. "Evidence on the nature and sources of agglomeration economies," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 49, pages 2119-2171 Elsevier.
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Cited by:
  1. Octavio Escobar, 2011. "The location pattern of FDI in Mexico after NAFTA," ERSA conference papers ersa10p804, European Regional Science Association.
  2. Martín Gonzalez-Eiras & Dirk Niepelt, 2005. "Sustaining Social Security," CESifo Working Paper Series 1494, CESifo Group Munich.
  3. Stefan Gruber, 2010. "To Migrate or to Commute?," Review of Economic Analysis, Rimini Centre for Economic Analysis, vol. 2(1), pages 110-134, January.
  4. Escobar Gamboa, Octavio Romano, 2009. "IDE entrants, exportations et productivité manufacturière : les différentes performances des régions mexicaines," Open Access publications from Université Paris-Dauphine urn:hdl:123456789/3850, Université Paris-Dauphine.

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