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Geographical Concentration, Comparative Advantage, and Public Policy

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Author Info
Toshihiro Okubo () (IUHEI)

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Abstract

This paper analyzes the geographical concentration and diversification of industries in the Continuum-of-Goods Trade Model in the presence of labor migration, comparative advantage, and external increasing returns to scale. In the model, higher transportation costs lead to concentration in one region, and lower transportation costs lead to diversification between the regions. For intermediate transportation costs, asymmetric diversification becomes a stable equilibrium through a reduction in the range of nontraded goods due to external increasing returns to scale and transportation costs. However, asymmetric equilibrium is an inefficient outcome: Pareto dominated by the other equilibria. To prevent this inefficient equilibrium, subsidies may be useful to sustain symmetric diversification.

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File URL: http://hei.unige.ch/sections/ec/pdfs/Working_papers/HEIWP14-2004.pdf
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Publisher Info
Paper provided by Economics Section, The Graduate Institute of International Studies in its series HEI Working Papers with number 14-2004.

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Length: 28
Date of creation: Jul 2004
Date of revision:
Handle: RePEc:gii:giihei:heiwp14-2004

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Related research
Keywords: Concentration; Diversification; Transportation Costs; Comparative Advantage; Nontraded Goods; External IRS; Production Subsidy;

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  1. 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. [Downloadable!] (restricted)
  2. Puga, Diego, 1999. "The rise and fall of regional inequalities," European Economic Review, Elsevier, vol. 43(2), pages 303-334, February. [Downloadable!] (restricted)
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  3. Martin, Philippe & Rogers, Carol Ann, 1995. "Industrial location and public infrastructure," Journal of International Economics, Elsevier, vol. 39(3-4), pages 335-351, November. [Downloadable!] (restricted)
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  4. Puga, Diego & Venables, Anthony J., 1996. "The Spread of Industry: Spatial Agglomeration in Economic Development," CEPR Discussion Papers 1354, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  5. 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, vol. 43(2), pages 409-436, May. [Downloadable!] (restricted)
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  6. Davis, Donald R. & Weinstein, David E., 2003. "Market access, economic geography and comparative advantage: an empirical test," Journal of International Economics, Elsevier, vol. 59(1), pages 1-23, January. [Downloadable!] (restricted)
  7. Baldwin, Richard E., 2001. "Core-periphery model with forward-looking expectations," Regional Science and Urban Economics, Elsevier, vol. 31(1), pages 21-49, February. [Downloadable!] (restricted)
  8. Midelfart-Knarvik, K.H. & Overman, H.G. & Redding, S.J. & Venables, A.J., 2000. "The Location of European Industry," European Economy - Economic Papers 142, Commission of the EC, Directorate-General for Economic and Financial Affairs (DG ECFIN).
  9. Goodfriend, Marvin & McDermott, John, 1995. "Early Development," American Economic Review, American Economic Association, vol. 85(1), pages 116-33, March. [Downloadable!] (restricted)
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  10. Rikard Forslid & Ian Wooton, 2003. "Comparative Advantage and the Location of Production," Review of International Economics, Blackwell Publishing, vol. 11(4), pages 588-603, 09. [Downloadable!] (restricted)
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  11. Glenn Ellison & Edward L. Glaeser, 1999. "The Geographic Concentration of Industry: Does Natural Advantage Explain Agglomeration?," American Economic Review, American Economic Association, vol. 89(2), pages 311-316, May. [Downloadable!] (restricted)
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  12. Baldwin, Richard E & Martin, Philippe & Ottaviano, Gianmarco I P, 2001. " Global Income Divergence, Trade, and Industrialization: The Geography of Growth Take-Offs," Journal of Economic Growth, Springer, vol. 6(1), pages 5-37, March. [Downloadable!] (restricted)
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  13. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June. [Downloadable!] (restricted)
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  14. Itoh, Motoshige & Kiyono, Kazuharu, 1987. "Welfare-Enhancing Export Subsidies," Journal of Political Economy, University of Chicago Press, vol. 95(1), pages 115-37, February. [Downloadable!] (restricted)
  15. Karen Helene Midelfart-Knarvik & Henry G. Overman, 2002. "Delocation and European integration: is structural spending justified?," Economic Policy, CEPR, CES, MSH, vol. 17(35), pages 321-359, October. [Downloadable!] (restricted)
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