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A third sector in the core-periphery model: non-tradable goods

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  • Vasco Leite

    ()
    (Faculdade de Economia, Universidade do Porto)

  • Sofia B.S.D. Castro

    ()
    (CMUP and Faculdade de Economia, Universidade do Porto)

  • João Correia-da-Silva

    ()
    (CEF.UP and Faculdade de Economia, Universidade do Porto)

Abstract

We extend an analytically solvable core-periphery model by introducing a monopolistically competitive sector of non-tradable goods. We study how trade costs affect the spatial distribution of economic activity. Trade costs have no effect when the elasticity of substitution among non-tradable goods is low. In this case, concentration of all production (of tradable and non-tradable goods) is the unique equilibrium. When the elasticity of substitution among non-tradable goods is high, we find two equilibrium configurations: symmetric dispersion of the production of tradable and non-tradable goods, if trade costs are high; and concentration of production of tradable goods with asymmetric dispersion of production of non-tradable goods, if trade costs are low.

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Bibliographic Info

Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 352.

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Length: 37 pages
Date of creation: Dec 2009
Date of revision:
Handle: RePEc:por:fepwps:352

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Keywords: New economic geography; Core-periphery model; Footloose entrepreneur; Nontradable goods;

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  1. Takatoshi Tabuchi & Jacques-François Thisse, 2006. "Regional Specialization, Urban Hierarchy, And Commuting Costs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(4), pages 1295-1317, November.
  2. Davis, D.R., 1997. "The Home Market, Trade, and Industrial Structure," Papers 597, Harvard - Institute for International Development.
  3. Puga, Diego, 1999. "The rise and fall of regional inequalities," European Economic Review, Elsevier, vol. 43(2), pages 303-334, February.
  4. Behrens, Kristian, 2004. "Agglomeration without trade: how non-traded goods shape the space-economy," Journal of Urban Economics, Elsevier, vol. 55(1), pages 68-92, January.
  5. F. Mureddu & F. Cerina, 2009. "Is Agglomeration really good for Growth? Global Efficiency, Interregional Equity and Uneven Growth," Working Paper CRENoS 200913, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  6. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
  7. 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.
  8. Rikard Forslid & Gianmarco I.P. Ottaviano, 2003. "An analytically solvable core-periphery model," Journal of Economic Geography, Oxford University Press, vol. 3(3), pages 229-240, July.
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