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Agglomeration and Economic Development: Import Substitution vs. Trade Liberalisation

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  • Puga, Diego
  • Venables, Anthony J

Abstract

This paper analyzes a model of economic development in which international differences in industrial structure and income are caused by the agglomeration of industry in a subset of countries. Economic development may not be a gradual process of convergence by all countries but instead involve countries moving sequentially from the group of poor countries to the group of rich countries. The role of trade policy in promoting industrialization is studied. While both import substitution and unilateral trade liberalization may be successful in attracting industry, they attract different sectors and welfare levels are higher under trade liberalization.

Suggested Citation

  • Puga, Diego & Venables, Anthony J, 1999. "Agglomeration and Economic Development: Import Substitution vs. Trade Liberalisation," Economic Journal, Royal Economic Society, vol. 109(455), pages 292-311, April.
  • Handle: RePEc:ecj:econjl:v:109:y:1999:i:455:p:292-311
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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • 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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