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A U-Shaped Europe? A Simulation Study of Industrial Location

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Author Info
Forslid, Rikard
Haaland, Jan I.
Ulltveit-Moe, Karen-Helene
Abstract

This paper uses a full-scale CGE-model - calibrated on 1992 data - to investigate the effects of European integration on the location of industrial production. Our results reveal large differences among individual industries. Industries with high scale elasticities typically display a non-monotonous relationship between trade liberalisation and concentration, with maximal concentration for intermediate trade costs. Other industries, more driven by comparative advantage, become more and more concentrated as trade costs are lowered. On the aggregate European level we find an (inverse) U-shaped relation between trade costs and concentration, with Europe 1992 close to the peak of concentration. The results also show a close correlation between real income gains and growth in manufacturing production; we label this an "externality shifting" effect - gains from pecuniary externalities in the manufacturing sectors. Finally, we note that nominal factor prices co-vary as regions specialise, while in relative terms there are traces of the Stolper-Samelson theorem.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2247.

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Date of creation: Sep 1999
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Handle: RePEc:cpr:ceprdp:2247

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Related research
Keywords: Agglomeration; Economic Geography; Economic Integration;

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Find related papers by JEL classification:
C68 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computable General Equilibrium Models
F10 - International Economics - - Trade - - - General
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
F15 - International Economics - - Trade - - - Economic Integration
R12 - Urban, Rural, and Regional Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

References listed on IDEAS
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  1. Gasiorek, Michael & Smith, Alasdair & Venables, Anthony J., 1992. "`1992': Trade and Welfare; A General Equilibrium Model," CEPR Discussion Papers 672, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  2. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December. [Downloadable!] (restricted)
  3. Haaland, Jan I. & Norman, Victor D, 1992. "Global Production Effects of European Integration," CEPR Discussion Papers 669, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  4. Krugman, Paul R & Venables, Anthony J, 1995. "Globalization and the Inequality of Nations," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 857-80, November. [Downloadable!] (restricted)
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  5. Forslid, R. & Haaland, J.I. & Knarvik, K.H.M. & Maestad, O., 1999. "Integration and Transition: Scenarios for Location of Production and Trade in Europe," Papers 13/99, Norwegian School of Economics and Business Administration-.
  6. Diego Puga, 1996. "The Spread of Industry: Spatial Agglomeration in Economic Development," CEP Discussion Papers dp0279, Centre for Economic Performance, LSE. [Downloadable!]
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  7. Maskus, Keith E. & Penubarti, Mohan, 1995. "How trade-related are intellectual property rights?," Journal of International Economics, Elsevier, vol. 39(3-4), pages 227-248, November. [Downloadable!] (restricted)
  8. Forslid, Rikard & Wooton, Ian, 1999. "Comparative Advantage and the Location of Production," CEPR Discussion Papers 2118, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  9. Richard E. Baldwin & Joseph F. Francois & Richard Portes, 1997. "The costs and benefits of eastern enlargement: the impact on the EU and central Europe," Economic Policy, CEPR, CES, MSH, vol. 12(24), pages 125-176, 04. [Downloadable!] (restricted)
  10. Helpman, E., 1995. "The Size of Regions," Papers 14-95, Tel Aviv.
  11. Davis, Donald R, 1998. "The Home Market, Trade, and Industrial Structure," American Economic Review, American Economic Association, vol. 88(5), pages 1264-76, December. [Downloadable!] (restricted)
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  12. Chris Allen & Michael Gasiorek & Alasdair Smith, 1998. "The competition effects of the Single Market in Europe," Economic Policy, CEPR, CES, MSH, vol. 13(27), pages 439-486, October. [Downloadable!] (restricted)
  13. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476.
  14. Venables, Anthony J, 1996. "Equilibrium Locations of Vertically Linked Industries," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(2), pages 341-59, May.
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  15. 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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  16. Amiti, Mary, 1998. "Inter-industry trade in manufactures: Does country size matter?," Journal of International Economics, Elsevier, vol. 44(2), pages 231-255, April. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Combes, Pierre-Philippe & Lafourcade, Miren, 2001. "Transport Cost Decline and Regional Inequalities: Evidence from France," CEPR Discussion Papers 2894, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  2. Henk J.E.M. Brand, 2003. "A Regional Core, Adjacent, Periphery Model for National Economic Geography Analysis," Working Papers 2004_1, Department of Economics, University of Glasgow. [Downloadable!]
  3. Henk J.E.M. Brand, 2004. "The Economic Geography Effects of Trade Liberalisation on the National Regions of Spain," Working Papers 2004_8, Department of Economics, University of Glasgow. [Downloadable!]
  4. Mika Widgrén, 2001. "Eastern Enlargement: Trade and Industrial Location in Europe," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 2(2), pages 14-18, October. [Downloadable!]
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