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Heterogeneous firms, trade liberalization and agglomeration


  • Hisamitsu Saito
  • Munisamy Gopinath
  • JunJie Wu


In this study, we develop an economic model to examine agglomeration of heterogeneous firms following trade liberalization. In a closed economy, we show that high-productivity firms are more likely to agglomerate because they benefit more from agglomeration than their low-productivity counterparts. However, trade liberalization, especially with a high-productivity partner, favours partial agglomeration; that is, low-productivity firms relocate away from the region where high-productivity firms agglomerate. Consequently, the welfare gap between the domestic regions of an economy narrows following trade liberalization. The latter result suggests that trade liberalization promotes regional economic development.

Suggested Citation

  • Hisamitsu Saito & Munisamy Gopinath & JunJie Wu, 2011. "Heterogeneous firms, trade liberalization and agglomeration," Canadian Journal of Economics, Canadian Economics Association, vol. 44(2), pages 541-560, May.
  • Handle: RePEc:cje:issued:v:44:y:2011:i:2:p:541-560

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    References listed on IDEAS

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    Cited by:

    1. von Ehrlich, Maximilian & Seidel, Tobias, 2013. "More similar firms — More similar regions? On the role of firm heterogeneity for agglomeration," Regional Science and Urban Economics, Elsevier, vol. 43(3), pages 539-548.
    2. Rikard Forslid & Toshihiro Okubo, 2015. "Which Firms Are Left In The Periphery? Spatial Sorting Of Heterogeneous Firms With Scale Economies In Transportation," Journal of Regional Science, Wiley Blackwell, vol. 55(1), pages 51-65, January.
    3. Forslid, Rikard & Okubo, Toshihiro, 2012. "On the development strategy of countries of intermediate size—An analysis of heterogeneous firms in a multi-region framework," European Economic Review, Elsevier, vol. 56(4), pages 747-756.
    4. Hisamitsu Saito, 2015. "Firm Heterogeneity, Multiplant Choice, And Agglomeration," Journal of Regional Science, Wiley Blackwell, vol. 55(4), pages 540-559, September.
    5. Churen Sun & Zhihao Yu & Tao Zhang, 2012. "Agglomeration, Productivity, and Firms¡® Exports: Evidence from Chinese Firm-level Data," ERSA conference papers ersa12p882, European Regional Science Association.
    6. Hayato Kato & Toshihiro Okubo, 2017. "Market Size in Globalization," Keio-IES Discussion Paper Series 2017-001, Institute for Economics Studies, Keio University.
    7. Sun, Churen & Yu, Zhihao & Zhang, Tao, 2012. "Agglomeration and Trade with Heterogeneous Firms," MPRA Paper 49001, University Library of Munich, Germany, revised 17 Aug 2013.

    More about this item

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)


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