This paper models, in game-theoretical terms, the location of two vertically-linked monopolistic firms in a spatial economy formed by a large, high labor cost country and a relatively small, low labor cost country. It is found that the decrease in transport costs shifts firms towards the low production cost country. This process takes two different forms: in labor-intensive industries it leads to spatial fragmentation; in industries with strong input-output relations, agglomerations are conserved, although they shift toward the low labor cost country.
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Paper provided by Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon. in its series Working Papers with number
2006/17.
Length: Date of creation: 2006 Date of revision: Handle: RePEc:ise:isegwp:wp172006
Contact details of provider: Postal: Department of Economics, School of Economics and Management (ISEG), Technical University of Lisbon, Rua do Quelhas 6, 1200-781 LISBON, PORTUGAL Web page: http://www.iseg.utl.pt/departamentos/economia/
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Find related papers by JEL classification: F10 - International Economics - - Trade - - - General F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies R30 - Urban, Rural, and Regional Economics - - Production Analysis and Firm Location - - - General
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