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Footloose capital, market access, and the geography of regional state aid

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  • Ottaviano, Gianmarco I. P.

Abstract

The global welfare implications of home market effects in trade models with imperfect competition are little understood. This paper proposes a simple model in which such implications can be easily analyzed. It shows an overall tendency of imperfectly competitive sectors to inefficiently cluster in locations that offer market access advantages. The more so the stronger the market power of firms as well as the intensity of increasing returns to scale and the lower the trade costs. As such features are likely to differ widely across sectors, those results provide theoretical ground to the promotion of regional policies that are also sectorspecific and not only region-specific as currently in the EU. --

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Paper provided by Hamburg Institute of International Economics (HWWA) in its series HWWA Discussion Papers with number 132.

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Date of creation: 2001
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Handle: RePEc:zbw:hwwadp:26387

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Web page: http://www.econstor.eu/handle/10419/20
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Keywords: economic integration; specialization; home market effect; regional disparities; regional policy;

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  1. Donald R. Davis & David E. Weinstein, 1997. "Economic Geography and Regional Production Structure: An Empirical Investigation," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 1802, Harvard - Institute of Economic Research.
  2. Head, Charles Keith & Mayer, Thierry & Ries, John, 2002. "On the Pervasiveness of Home Market Effects," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3454, C.E.P.R. Discussion Papers.
  3. Gianmarco Ottaviano & Takatoshi Tabuchi & Jacques-Francois Tissse, 1999. "Agglomeration and Trade Revisited," CIRJE F-Series, CIRJE, Faculty of Economics, University of Tokyo CIRJE-F-65, CIRJE, Faculty of Economics, University of Tokyo.
  4. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, American Economic Association, vol. 85(3), pages 615-23, June.
  5. K.H. Midelfart & H.G. Overman & S.J. Redding & A.J. Venables, 2000. "The location of European industry," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 142, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  6. Brander, James & Krugman, Paul, 1983. "A 'reciprocal dumping' model of international trade," Journal of International Economics, Elsevier, Elsevier, vol. 15(3-4), pages 313-321, November.
  7. Keith Head & Thierry Mayer, 2000. "Non-Europe: The magnitude and causes of market fragmentation in the EU," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 136(2), pages 284-314, June.
  8. Brülhart, Marius & Trionfetti, Federico, 1998. "Industrial Specialisation and Public Procurement: Theory and Empirical Evidence," Economics Technical Papers, Trinity College Dublin, Department of Economics 983, Trinity College Dublin, Department of Economics.
  9. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, American Economic Association, vol. 70(5), pages 950-59, December.
  10. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS), University of Warwick, Department of Economics 64, University of Warwick, Department of Economics.
  11. Helpman, E., 1990. "Monopolistic Competition In Trade Theory," Princeton Studies in International Economics, International Economics Section, Departement of Economics Princeton University, 16, International Economics Section, Departement of Economics Princeton University,.
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