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More Similar Firms - More Similar Regions? On the Role of Firm Heterogeneity for Agglomeration

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  • Maximilian Von Ehrlich
  • Tobias Seidel

Abstract

In contrast to what several papers have argued recently, we show that firm heterogeneity fosters agglomeration of economic activity. If firms are more similar with respect to their total factor productivity, each company faces a lower propensity to export. This renders the home market more important speaking against agglomeration. We also relate changes in firm heterogeneity to technological progress which allows us to derive novel insights on the role of technology for the location of economic activity.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2012/wp-cesifo-2012-12/cesifo1_wp4028.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4028.

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Date of creation: 2012
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Handle: RePEc:ces:ceswps:_4028

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Keywords: firm heterogeneity; agglomeration; technological change; trade; labor mobility;

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  1. Toshihiro Okubo & Pierre M. Picard & Jacques-François Thisse, 2008. "The spatial selection of heterogeneous firms," Discussion Paper Series, Research Institute for Economics & Business Administration, Kobe University 229, Research Institute for Economics & Business Administration, Kobe University.
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  6. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, American Economic Association, vol. 70(5), pages 950-59, December.
  7. Timothy Dunne & Lucia Foster & John Haltiwanger & Kenneth R. Troske, 2004. "Wage and Productivity Dispersion in United States Manufacturing: The Role of Computer Investment," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 22(2), pages 397-430, April.
  8. Peter Egger & Tobias Seidel, 2008. "Agglomeration and fair wages," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 41(1), pages 271-291, February.
  9. Martin, Philippe & Ottaviano, Gianmarco Ireo Paolo, 1996. "Growth and Agglomeration," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1529, C.E.P.R. Discussion Papers.
  10. Hisamitsu Saito & Munisamy Gopinath & JunJie Wu, 2011. "Heterogeneous firms, trade liberalization and agglomeration," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 44(2), pages 541-560, May.
  11. Yeaple, Stephen & Helpman, Elhanan & Melitz, Marc, 2004. "Export versus FDI with Heterogeneous Firms," Scholarly Articles 3229098, Harvard University Department of Economics.
  12. Maximilian Von Ehrlich & Tobias Seidel, 2013. "Regional Implications of Financial Market Development: Credit Rationing, Trade, and Location," CESifo Working Paper Series, CESifo Group Munich 4063, CESifo Group Munich.
  13. Richard Baldwin & Toshihiro Okubo, 2005. "Heterogeneous Firms, Agglomeration and Economic Geography: Spatial Selection and Sorting," NBER Working Papers 11650, National Bureau of Economic Research, Inc.
  14. Pflüger, Michael & Suedekum, Jens, 2013. "Subsidizing firm entry in open economies," Journal of Public Economics, Elsevier, Elsevier, vol. 97(C), pages 258-271.
  15. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  16. Okubo, Toshihiro, 2009. "Trade liberalisation and agglomeration with firm heterogeneity: Forward and backward linkages," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 39(5), pages 530-541, September.
  17. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(3), pages 483-99, June.
  18. Rod Falvey & David Greenaway & Zhihong Yu, 2011. "Catching Up or Pulling Away: Intra-Industry Trade, Productivity Gaps and Heterogeneous Firms," Open Economies Review, Springer, Springer, vol. 22(1), pages 17-38, February.
  19. Baldwin, Richard E & Forslid, Rikard, 2000. "The Core-Periphery Model and Endogenous Growth: Stabilizing and Destabilizing Integration," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 67(267), pages 307-24, August.
  20. Francesco Caselli, 1999. "Technological Revolutions," American Economic Review, American Economic Association, American Economic Association, vol. 89(1), pages 78-102, March.
  21. Gianmarco I. P. Ottaviano, 2011. "'New' new economic geography: firm heterogeneity and agglomeration economies," Journal of Economic Geography, Oxford University Press, Oxford University Press, vol. 11(2), pages 231-240, March.
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