Geographical disadvantage - a Heckscher-Ohlin-von Thunen model of international specialization
AbstractThe combination of distance, poor infrastructure, and being landlocked by neighbors with poor infrastructure, can make transport costs many times higher for some developing countries than for most others. Drawing on two traditions of economic modeling --Heckscher-Ohlin trade theory and von Thunen's work on the"isolated state"- the authors analyze the trade and production patterns of countries located at varying distances from an economic center. Predicting a country's production and trade pattern requires a knowledge of the country's location, its factor endowment, and the factor and transport intensities of goods. The authors define transport intensity and show how location and transport intensity should be combined with factor abundance and factor intensity, in determining trade flows. A theory based on only one set of those variables, such as factor abundance, will systematically make incorrect predictions. They report that geography and endowments interact in such a way that the world divides up into economic zones with different trade patterns. Countries close to the economic center may specialize in transport-intensive activities; countries further out become diversified, producing, and sometimes trading more goods; countries still further out may become import-substituting (replacing some of their imports from the center with local production); in the extreme, regions become autarkic. More remote locations have lower real incomes. Globalization changes the terms of trade, improving the welfare of regions further out from economic centers, though reducing the welfare of closer regions. Where will a new activity, such as assembly of a new product, locate? Remote locations are disadvantaged if the product has high transport intensity (perhaps because of heavy requirements for intermediate inputs). But the costs of remoteness are already incorporated into the factor prices of those regions, which makes them more attractive. Which location is chosen depends, therefore, on how existing activities compare with the new activity in transport intensity and factor intensity.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 2256.
Date of creation: 31 Dec 1999
Date of revision:
Transport Economics Policy&Planning; Environmental Economics&Policies; Payment Systems&Infrastructure; Economic Theory&Research; Labor Policies; TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT; Banks&Banking Reform; Transport Economics Policy&Planning; Economic Theory&Research; Environmental Economics&Policies;
Other versions of this item:
- 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.
- Limão, Nuno & Venables, Anthony J., 1999. "Geographical Disadvantage: A Heckscher-Ohlin-Von Thunen model of International Specialization," CEPR Discussion Papers 2305, C.E.P.R. Discussion Papers.
- F10 - International Economics - - Trade - - - General
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Leamer, Edward E. & Levinsohn, James, 1995.
"International trade theory: The evidence,"
Handbook of International Economics, Elsevier,
in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 26, pages 1339-1394
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- Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476, December.
- Limao, Nuno & Venables, Anthony J., 1999. "Infrastructure, geographical disadvantage, and transport costs," Policy Research Working Paper Series 2257, The World Bank.
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