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Footloose Capital, Market Access, and the Geography of Regional State Aid

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  • Gianmarco I.P. Ottaviano

    (Università Bocconi, GIIS and CEPR)

Abstract

The global welfare implications of home market effects in trade models with imperfect competition are little understood. This paper proposes a simple model in which such implications can be easily analyzed. It shows an overall tendency of imperfectly competitive sectors to inefficiently cluster in locations that offer market access advantages. The more so the stronger the market power of firms as well as the intensity of increasing returns to scale and the lower the trade costs. As such features are likely to di¤er widely across sectors, those results provide theoretical ground to the promotion of regional policies that are also sector-specific and not only region-specific as currently in the EU.

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Bibliographic Info

Paper provided by Centro Studi Luca d\'Agliano, University of Milano in its series Development Working Papers with number 155.

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Date of creation: 01 May 2001
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Handle: RePEc:csl:devewp:155

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Keywords: economic integration; specialization; home market effect; regional disparities; regional policy;

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  1. Keith Head & Thierry Mayer, 2000. "Non-Europe: The magnitude and causes of market fragmentation in the EU," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 136(2), pages 284-314, June.
  2. Brülhart, Marius & Trionfetti, Federico, 1998. "Industrial Specialisation and Public Procurement: Theory and Empirical Evidence," Economics Technical Papers, Trinity College Dublin, Department of Economics 983, Trinity College Dublin, Department of Economics.
  3. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, American Economic Association, vol. 67(3), pages 297-308, June.
  4. Gianmarco Ottaviano & Takatoshi Tabuchi & Jacques-FranÁois Thisse, 2002. "Agglomeration and Trade Revisited," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(2), pages 409-436, May.
  5. Keith Head & Thierry Mayer & John Ries, 2002. "On the pervasiveness of home market effects," Sciences Po publications info:hdl:2441/c8dmi8nm4pd, Sciences Po.
  6. Donald R. Davis & David E. Weinstein, 1997. "Economic Geography and Regional Production Structure: An Empirical Investigation," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 1802, Harvard - Institute of Economic Research.
  7. James A. Brander & Paul Krugman, 1983. "A 'Reciprocal Dumping' Model of International Trade," NBER Working Papers 1194, National Bureau of Economic Research, Inc.
  8. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, American Economic Association, vol. 85(3), pages 615-23, June.
  9. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, American Economic Association, vol. 70(5), pages 950-59, December.
  10. K.H. Midelfart & H.G. Overman & S.J. Redding & A.J. Venables, 2000. "The location of European industry," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 142, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  11. Helpman, E., 1990. "Monopolistic Competition In Trade Theory," Princeton Studies in International Economics, International Economics Section, Departement of Economics Princeton University, 16, International Economics Section, Departement of Economics Princeton University,.
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