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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, 2003. "Regional Policy, Integration and the Location of Industry," Research Papers in Economics 2003:7, Stockholm University, Department of Economics.
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  8. Toshihiro Okubo & Pierre M. Picard & Jacques-François Thisse, 2008. "The spatial selection of heterogeneous firms," CREA Discussion Paper Series 08-16, Center for Research in Economic Analysis, University of Luxembourg.
  9. Rikard Forslid & Toshihiro Okubo, 2010. "On the development strategy of countries of intermediate size -An analysis of heterogenous firms in a multiregion framework," Discussion Paper Series DP2010-36, Research Institute for Economics & Business Administration, Kobe University.
  10. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
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  23. Toshihiro Okubo & Vincent Rebeyrol, 2006. "Home market effect, regulation costs and heterogeneous firms," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00118871, HAL.
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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. Richard Baldwin & Toshihiro Okubo, 2011. "International Trade, Offshoring and Heterogeneous Firms," NBER Working Papers 16660, National Bureau of Economic Research, Inc.
  3. Rikard Forslid & Toshihiro Okubo, 2010. "On the development strategy of countries of intermediate size -An analysis of heterogenous firms in a multiregion framework," Discussion Paper Series DP2010-36, Research Institute for Economics & Business Administration, Kobe University.

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