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Locational Disadvantage and Losses from Trade: Three Regions in Economic Geography

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  • Takanori Ago

    (Takasaki City University of Economics)

  • Ikumo Isono

    (Graduate School of Economics, The University of Tokyo)

  • Takatoshi Tabuchi

    (Faculty of Economics, The University of Tokyo)

Abstract

We show that how spatial evolution is different between the two representative models of economic geography: Krugman (1991 JPE) and Ottaviano et al. (2002 IER). We analyze the impacts of falling transport costs on the spatial distribution of economic activities and welfare for three regions located on a line. In the former model, the central region always has locational advantage and manufacturing workers gain from trade. In the latter model, however, the opposite is true when markets are opened up to trade. This is because the price competition is so keen in the central region that manufacturing sector moves to the peripheral regions, which aggravates the social welfare. We then show that when goods are close substitutes and share of manufacturing is of an intermediate level, the manufacturing activities completely disappears from the central region leading to a full agglomeration in one peripheral region.

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Bibliographic Info

Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-224.

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Length: 35 pages
Date of creation: May 2003
Date of revision:
Handle: RePEc:tky:fseres:2003cf224

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  1. James Brander & Paul Krugman, 1980. "A "Reciprocal Dumping" Model of International Trade," Working Papers 405, Queen's University, Department of Economics.
  2. Anderson, Simon P. & Schmitt, Nicolas & Thisse, Jacques-Francois, 1995. "Who benefits from antidumping legislation?," Journal of International Economics, Elsevier, vol. 38(3-4), pages 321-337, May.
  3. Gianmarco Ottaviano & Takatoshi Tabuchi & Jacques-Francois Tissse, 1999. "Agglomeration and Trade Revisited," CIRJE F-Series CIRJE-F-65, CIRJE, Faculty of Economics, University of Tokyo.
  4. Furusawa, Taiji & Konishi, Hideo, 2007. "Free trade networks," Journal of International Economics, Elsevier, vol. 72(2), pages 310-335, July.
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  7. Krugman, Paul, 1993. "On the number and location of cities," European Economic Review, Elsevier, vol. 37(2-3), pages 293-298, April.
  8. Venables, Anthony J. & Limao, Nuno, 2002. "Geographical disadvantage: a Heckscher-Ohlin-von Thunen model of international specialisation," Journal of International Economics, Elsevier, vol. 58(2), pages 239-263, December.
  9. Ottaviano, Gianmarco Ireo Paolo & Thisse, Jacques-François, 1999. "Integration, Agglomeration and the Political Economics of Factor Mobility," CEPR Discussion Papers 2185, C.E.P.R. Discussion Papers.
  10. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  11. 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.
  12. Cremer, Helmuth & De Kerchove, Anne-Marie & Thisse, Jacques-Francois, 1985. "An economic theory of public facilities in space," Mathematical Social Sciences, Elsevier, vol. 9(3), pages 249-262, June.
  13. Fujita, Masahisa & Mori, Tomoya, 1997. "Structural stability and evolution of urban systems," Regional Science and Urban Economics, Elsevier, vol. 27(4-5), pages 399-442, August.
  14. Economides, Nicholas & Siow, Aloysius, 1988. "The Division of Markets is Limited by the Extent of Liquidity (Spatial Competition with Externalities)," American Economic Review, American Economic Association, vol. 78(1), pages 108-21, March.
  15. Alesina, Alberto & Spolaore, Enrico, 1997. "On the Number and Size of Nations," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1027-56, November.
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