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Trade and Industrial Location with Heterogenous Labour

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  • Amiti, Mary
  • Pissarides, Christopher

Abstract

We show in the framework of a new economic geography model that when labour is heterogenous and productivity depends on the quality of the match between job and worker, trade liberalization may lead to industrial agglomeration and inter-industry trade. The agglomeration force is the improvement in the quality of matches when firms recruit from a bigger pool of labour. The forces against agglomeration are the existence of trade costs and monopoly power in the labour market. We show that more heterogeneity in skills attracts both firms and workers to bigger markets and supports agglomeration at higher trade costs.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3366.

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Date of creation: May 2002
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Handle: RePEc:cpr:ceprdp:3366

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Keywords: agglomeration; inter-regional trade; matching; spacial mismatch;

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References

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  18. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
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