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On the development strategy of countries of intermediate size - An analysis of heterogenous firms in a multiregion framework

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  • Forslid, Rikard
  • Okubo, Toshihiro

Abstract

This paper compares two policies: trade cost reduction and firm relocation cost reduction using a three-country version of a heterogeneous-firms economic geography model, where the three countries have different market (population) size. We show how the effects of the two policies differ, in particular, for the country of intermediate size. Unless the intermediate country is very small, it will gain industry when relocation costs are reduced, but lose industry when trade costs are reduced. The smallest country loses industry in both cases, but only experiences lower welfare in the case of lower relocation costs. Thus, the ranking of the policies from the point of view of the two small and intermediate countries tends to be the opposite.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8178.

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Date of creation: Jan 2011
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Handle: RePEc:cpr:ceprdp:8178

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Related research

Keywords: agglomeration; firm heterogeneity; multi-country model; relocation costs; trade liberalisation;

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References

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  1. Forslid, Rikard & Okubo, Toshihiro, 2012. "On the development strategy of countries of intermediate size—An analysis of heterogeneous firms in a multi-region framework," European Economic Review, Elsevier, vol. 56(4), pages 747-756.
  2. Puga, Diego & Venables, Anthony J., 1996. "The Spread of Industry: Spatial Agglomeration in Economic Development," Journal of the Japanese and International Economies, Elsevier, vol. 10(4), pages 440-464, December.
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  5. OTTAVIANO, Gianmarco & TABUCHI , Takatoshi & THISSE, Jacques-François, . "Agglomeration and trade revisited," CORE Discussion Papers RP -1553, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Chad Syverson, 2001. "Market Structure and Productivity: A Concrete Example," Working Papers 01-06, Center for Economic Studies, U.S. Census Bureau.
  7. PierrePhilippe Combes & Gilles Duranton & Laurent Gobillon & Diego Puga & Sébastien Roux, 2009. "The Productivity Advantages of Large Cities: Distinguishing Agglomeration from Firm Selection," SERC Discussion Papers 0027, Spatial Economics Research Centre, LSE.
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  10. Krugman, Paul & Elizondo, Raul Livas, 1996. "Trade policy and the Third World metropolis," Journal of Development Economics, Elsevier, vol. 49(1), pages 137-150, April.
  11. 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.
  12. Toshihiro Okubo & Vincent Rebeyrol, 2006. "Home Market Effect, regulation costs and heterogeneous firms," Cahiers de la Maison des Sciences Economiques bla06056, Université Panthéon-Sorbonne (Paris 1).
  13. Hisamitsu Saito & Munisamy Gopinath & JunJie Wu, 2011. "Heterogeneous firms, trade liberalization and agglomeration," Canadian Journal of Economics, Canadian Economics Association, vol. 44(2), pages 541-560, May.
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  16. Forslid, Rikard & Okubo, Toshihiro, 2010. "On the Development Strategy of Countries of Intermediate size - An Analysis of Heterogenous Fims in a Multiregion Framework," Research Papers in Economics 2010:28, Stockholm University, Department of Economics.
  17. Okubo, Toshihiro & Picard, Pierre M & Thisse, Jacques-François, 2008. "The Spatial Selection of Heterogeneous Firms," CEPR Discussion Papers 6978, C.E.P.R. Discussion Papers.
  18. Richard E. Baldwin & Toshihiro Okubo, 2006. "Heterogeneous firms, agglomeration and economic geography: spatial selection and sorting," Journal of Economic Geography, Oxford University Press, vol. 6(3), pages 323-346, June.
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  22. Del Gatto, Massimo & Ottaviano, Gianmarco Ireo Paolo & Pagnini, Marcello, 2007. "Openness to Trade and Industry Cost Dispersion: Evidence from a Panel of Italian Firms," CEPR Discussion Papers 6336, C.E.P.R. Discussion Papers.
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  24. Forslid, Rikard, 2003. "Regional Policy, Integration and the Location of Industry," Research Papers in Economics 2003:7, Stockholm University, Department of Economics.
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Citations

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Cited by:
  1. Biing-Shiunn Yang & Chao-Cheng Mai, 2013. "The impact of uncertain environmental regulatory policy on optimal plant location and anti-pollution technology selection," The Annals of Regional Science, Springer, vol. 50(3), pages 753-769, June.
  2. Rikard Forslid & Toshihiro Okubo, 2011. "On the development strategy of countries of intermediate size - An analysis of heterogeneous firms in a multi-region framework," Keio/Kyoto Joint Global COE Discussion Paper Series 2011-029, Keio/Kyoto Joint Global COE Program.
  3. Richard Baldwin & Toshihiro Okubo, 2012. "International Trade, Offshoring and Heterogeneous Firms," Keio/Kyoto Joint Global COE Discussion Paper Series 2012-014, Keio/Kyoto Joint Global COE Program.

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