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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. James Brander & Paul Krugman, 1980. "A "Reciprocal Dumping" Model of International Trade," Working Papers, Queen's University, Department of Economics 405, Queen's University, Department of Economics.
  2. OTTAVIANO, Gianmarco & TABUCHI , Takatoshi & THISSE, Jacques-François, . "Agglomeration and trade revisited," CORE Discussion Papers RP -1553, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Donald R. Davis & David E. Weinstein, 1997. "Economic Geography and Reginal Production Structure: An Empirical Investigation," NBER Working Papers 6093, National Bureau of Economic Research, Inc.
  4. 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.
  5. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, American Economic Association, vol. 67(3), pages 297-308, June.
  6. Keith Head & Thierry Mayer, 2004. "Non-Europe : the magnitude and causes of market fragmentation in the EU," Cahiers de la Maison des Sciences Economiques, Université Panthéon-Sorbonne (Paris 1) bla99004a, Université Panthéon-Sorbonne (Paris 1).
  7. 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.
  8. Head, Keith & Mayer, Thierry & Ries, John, 2002. "On the Pervasiveness of Home Market Effects," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 69(275), pages 371-90, August.
  9. 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,.
  10. 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.
  11. 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.
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