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Economic geography and regional production structure: an empirical investigation

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  • Donald R. Davis
  • David E. Weinstein

Abstract

There are two principal theories of why countries or regions trade: comparative advantage and increasing returns to scale. Yet there is virtually no empirical work that assesses the relative importance of these two theories in accounting for production structure and trade. We use a framework that nests an increasing returns model of economic geography featuring "home market effects" with that of Heckscher-Ohlin. We employ these trade models to account for the structure of regional production in Japan. We find support for the existence of economic geography effects in eight of nineteen manufacturing sectors, including such important ones as transportation equipment, iron and steel, electrical machinery, and chemicals. Moreover, we find that these effects are economically very significant. The latter contrasts with the results of Davis and Weinstein (1996), which found scant economic significance of economic geography for the structure of OECD production. We conclude that while economic geography may explain little about the international structure of production, it is very important for understanding the regional structure of production.

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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 40.

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Date of creation: 1998
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Handle: RePEc:fip:fednsr:40

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Keywords: Regional economics - Japan ; Japan;

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References

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  1. Davis, Donald R, 1997. "Critical Evidence on Comparative Advantage? North-North Trade in a Multilateral World," Journal of Political Economy, University of Chicago Press, vol. 105(5), pages 1051-60, October.
  2. Jeffrey R. Bernstein & David E. Weinstein, 1998. "Do Endowments Predict the Location of Production? Evidence from National and International Data," NBER Working Papers 6815, National Bureau of Economic Research, Inc.
  3. Charles Engel & John H. Rogers, 1994. "How Wide is the Border?," NBER Working Papers 4829, National Bureau of Economic Research, Inc.
  4. Paul Krugman & Anthony J. Venables, 1995. "Globalization and the Inequality of Nations," NBER Working Papers 5098, National Bureau of Economic Research, Inc.
  5. Alan V. Deardorff, 1995. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," NBER Working Papers 5377, National Bureau of Economic Research, Inc.
  6. Sveikauskas, Leo A, 1975. "The Productivity of Cities," The Quarterly Journal of Economics, MIT Press, vol. 89(3), pages 393-413, August.
  7. Deardoff, A.V., 1995. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," Working Papers 382, Research Seminar in International Economics, University of Michigan.
  8. Ellison, Glenn & Glaeser, Edward L, 1997. "Geographic Concentration in U.S. Manufacturing Industries: A Dartboard Approach," Journal of Political Economy, University of Chicago Press, vol. 105(5), pages 889-927, October.
  9. Donald R. Davis & David E. Weinstein, 1996. "Does Economic Geography Matter for International Specialization?," Harvard Institute of Economic Research Working Papers 1773, Harvard - Institute of Economic Research.
  10. Bernhofen, Daniel M., 1998. "Intra-industry trade and strategic interaction: Theory and evidence," Journal of International Economics, Elsevier, vol. 45(1), pages 77-96, June.
  11. repec:fth:iniesr:430 is not listed on IDEAS
  12. Nakamura, Ryohei, 1985. "Agglomeration economies in urban manufacturing industries: A case of Japanese cities," Journal of Urban Economics, Elsevier, vol. 17(1), pages 108-124, January.
  13. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, vol. 85(3), pages 615-23, June.
  14. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  15. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
  16. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
  17. J. Vernon Henderson & Ari Kuncoro & Matthew Turner, 1992. "Industrial Development in Cities," NBER Working Papers 4178, National Bureau of Economic Research, Inc.
  18. Helpman, Elhanan, 1981. "International trade in the presence of product differentiation, economies of scale and monopolistic competition : A Chamberlin-Heckscher-Ohlin approach," Journal of International Economics, Elsevier, vol. 11(3), pages 305-340, August.
  19. Davis, Donald R. & David E. Weinstein & Scott C. Bradford & Kazushige Shimpo, 1997. "Using International and Japanese Regional Data to Determine When the Factor Abundance Theory of Trade Works," American Economic Review, American Economic Association, vol. 87(3), pages 421-46, June.
  20. Weder, Rolf, 1995. "Linking Absolute and Comparative Advantage to Intra-industry Trade Theory," Review of International Economics, Wiley Blackwell, vol. 3(3), pages 342-54, October.
  21. Henderson, J. Vernon, 1986. "Efficiency of resource usage and city size," Journal of Urban Economics, Elsevier, vol. 19(1), pages 47-70, January.
  22. repec:fth:michin:403 is not listed on IDEAS
  23. Davis, Donald R., 1995. "Intra-industry trade: A Heckscher-Ohlin-Ricardo approach," Journal of International Economics, Elsevier, vol. 39(3-4), pages 201-226, November.
  24. Justman, Moshe, 1994. "The Effect of Local Demand on Industry Location," The Review of Economics and Statistics, MIT Press, vol. 76(4), pages 742-53, November.
  25. Harry P. Bowen & Edward E. Leamer & Leo Sveikauskas, 1986. "Multicountry, Multifactor Tests of the Factor Abundance Theory," NBER Working Papers 1918, National Bureau of Economic Research, Inc.
  26. repec:fth:michin:382 is not listed on IDEAS
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