Integration, Specialization and Adjustment
AbstractThe paper considers the equilibrium location of two industries in two countries. Both industries are imperfectly competitive and produce goods which are used in final consumption and as intermediates by firms in the same industry. Intermediate usage creates cost and demand linkages between firms and a tendency for agglomeration of each industry. When trade barriers are high the equilibrium involves division of both industries between both locations in order to meet the final demands of consumers. At lower trade barriers agglomeration forces dominate and the equilibrium involves specialization, with each industry concentrated in a single location. Economic integration may induce specialization. The paper studies the simple dynamics of the model and demonstrates that during the adjustment process a sizeable proportion of the labour force may suffer lower real wages as relocation of industry occurs, although there are long-run gains from integration.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 886.
Date of creation: Dec 1993
Date of revision:
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Other versions of this item:
- F1 - International Economics - - Trade
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- F15 - International Economics - - Trade - - - Economic Integration
- R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location
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