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Heckscher-Ohlin and Agglomeration

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Abstract

New Economic Geography (NEG) models are difficult to confront with the data, since "on the one hand, they generally emphasise the unleashing of agglomeration forces after trade liberalisation, but on the other hand, they also accomodate multiple equilibria and non-monotonicity" (Brülhart, 1998a). In this paper, we show that once factor proportions are fully taken into account in a standard NEG model, the indeterminacy arising from multiple equilibria becomes less severe, and non-monotonicy arises as the most general implication of this literature. We further show that, although trade integration among similar countries ultimately leads to factor price equalisation, agglomeration economies imply an overshooting of relative factor prices with respect to their free trade level in the process of economic integration. Finally, we show that the joint interaction of factor proportions and agglomeration economies may help explain the simultaneous rise in production specialisation and fall in trade specialisation experienced by most European countries in the last decades.

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Bibliographic Info

Paper provided by KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy in its series KITeS Working Papers with number 126.

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Length: 31 pages
Date of creation: Mar 2001
Date of revision: Dec 2001
Handle: RePEc:cri:cespri:wp126

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Keywords: Integration; Specialisation; New economic geography; Factor proportions; Stolper-Samuelson;

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References

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  1. 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, December.
  2. Ottaviano, Gianmarco Ireo Paolo & Puga, Diego, 1997. "Agglomeration in the Global Economy: A Survey of the 'New Economic Geography'," CEPR Discussion Papers 1699, C.E.P.R. Discussion Papers.
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Citations

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Cited by:
  1. Maria Florencia Granato, 2011. "REGIONAL NEW ECONOMIC GEOGRAPHY (refereed paper)," ERSA conference papers ersa10p747, European Regional Science Association.
  2. PICARD, Pierre M. & ZENG, Dao-Zhi, 2006. "Industrial location : a synthesis of Chamberlin and Ricardo," CORE Discussion Papers 2006055, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Pierre M. Picard & Dao-Zhi Zeng, 2009. "A Harmonization of First and Second Natures," CREA Discussion Paper Series 09-10, Center for Research in Economic Analysis, University of Luxembourg.
  4. Julio Martinez-Galarraga & Joan R. Roses & Daniel A. Tirado Fabregat, 2009. "The Upswing of Regional Income Inequality in Spain (1860-1930)," Working Papers in Economic History wp09-05, Universidad Carlos III, Departamento de Historia Económica e Instituciones.
  5. G.A. Minerva, 2006. "Natural Advantage, Location and Trade Patterns in Increasing Returns to Scale Industries," Working Papers 560, Dipartimento Scienze Economiche, Universita' di Bologna.
  6. Epifani, Paolo, 2005. "Heckscher-Ohlin and agglomeration," Regional Science and Urban Economics, Elsevier, vol. 35(6), pages 645-657, November.
  7. Bagoulla, Corinne & Péridy, Nicolas, 2011. "Market access and the other determinants of North–South manufacturing location choice: An application to the Euro-Mediterranean area," Economic Systems, Elsevier, vol. 35(4), pages 537-561.
  8. Fr�d�ric Robert-Nicoud, 2006. "Agglomeration and Trade with Input–Output Linkages and Capital Mobility," Spatial Economic Analysis, Taylor & Francis Journals, vol. 1(1), pages 101-126.

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