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Divergence, wage-gap and geography

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  • Andres, Frédéric
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    Abstract

    We develop a geographic growth model where nominal wages are allowed to diverge between the two considered countries. Removing the standard assumption entailing that both countries always own a traditional sector, we argue that, as trade gets freer, the traditional sector of one country might cease to exist so that wages increase: it gives rise to an additional dispersion force independent of trade costs. Hence, the core-periphery outcome might never be reached, which contradicts previous literature’s results. We also question a hallmark of the literature since we argue that full agglomeration of firms might actually lead to slower growth for both countries.

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    File URL: http://basepub.dauphine.fr/xmlui/bitstream/123456789/4070/1/andres.pdf
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    Bibliographic Info

    Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/4070.

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    Date of creation: 2006
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    Publication status: Published in Economie internationale, 2006, Vol. 4, no. 108. pp. 83-112.Length: 29 pages
    Handle: RePEc:dau:papers:123456789/4070

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    Related research

    Keywords: New economic geography; wage differential; endogenous growth; knowledge spillovers; Nouvelle économie géographique; différentiels de salaires; croissance endogène; spillovers de connaissances;

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    1. Davis, D.R., 1997. "The Home Market, Trade, and Industrial Structure," Papers 597, Harvard - Institute for International Development.
    2. Diego Puga, 1996. "The rise and fall of regional inequalities," LSE Research Online Documents on Economics 20643, London School of Economics and Political Science, LSE Library.
    3. Picard, Pierre M. & Zeng, Dao-Zhi, 2005. "Agricultural sector and industrial agglomeration," Journal of Development Economics, Elsevier, vol. 77(1), pages 75-106, June.
    4. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
    5. Rikard Forslid & Ian Wooton, 2003. "Comparative Advantage and the Location of Production," Review of International Economics, Wiley Blackwell, vol. 11(4), pages 588-603, 09.
    6. Glass, Amy Jocelyn & Saggi, Kamal, 2002. "Intellectual property rights and foreign direct investment," Journal of International Economics, Elsevier, vol. 56(2), pages 387-410, March.
    7. Robert-Nicoud, Frédéric, 2006. "Off-Shoring of Business Services and Deindustrialization: Threat or Opportunity - and for Whom?," CEPR Discussion Papers 5617, C.E.P.R. Discussion Papers.
    8. Richard E. Baldwin & Philippe Martin & Gianmarco I. P. Ottaviano, 1998. "Global Income Divergence, Trade and Industrializatiion: The Geography of Growth Take-Offs," NBER Working Papers 6458, National Bureau of Economic Research, Inc.
    9. repec:hal:cesptp:hal-00497693 is not listed on IDEAS
    10. Krugman, Paul & Venables, Anthony J., 1994. "Globalization and the Inequality of Nations," CEPR Discussion Papers 1015, C.E.P.R. Discussion Papers.
    11. Matthieu Crozet & Federico Trionfetti, 2007. "Trade Costs and the Home Market Effect," Working Papers 2007-05, CEPII research center.
    12. Mion, Giordano, 2003. "Spatial Externalities and Empirical Analysis: The Case of Italy," ZEW Discussion Papers 03-38, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    13. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
    14. Aghion, P. & Howitt, P., 1990. "A Model Of Growth Through Creative Destruction," DELTA Working Papers 90-12, DELTA (Ecole normale supérieure).
    15. repec:fth:iniesr:430 is not listed on IDEAS
    16. Diego Puga, 2002. "European regional policies in light of recent location theories," Journal of Economic Geography, Oxford University Press, vol. 2(4), pages 373-406, October.
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