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Market size in globalization

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  • Kato, Hayato
  • Okubo, Toshihiro

Abstract

A salient feature of the current globalization is a loss of manufacturing in developed countries and rapid industrialization in middle-sized developing countries. This paper aims to construct a simple three-country trade and geography model with different market sizes and non-constant wage rates. The large country fosters industrial agglomeration (geographical concentration) in the early stage of globalization, but loses manufacturing in the later stage of globalization. When losing manufacturing, the large country might be worse off. Thus, the large country might have an incentive to implement welfare-maintaining policies to prevent a loss of manufacturing. All of these results can be explained by market sizes.

Suggested Citation

  • Kato, Hayato & Okubo, Toshihiro, 2018. "Market size in globalization," Journal of International Economics, Elsevier, vol. 111(C), pages 34-60.
  • Handle: RePEc:eee:inecon:v:111:y:2018:i:c:p:34-60
    DOI: 10.1016/j.jinteco.2017.12.003
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    More about this item

    Keywords

    Agglomeration; Market size; Middle-sized country; Non-constant wages; Industry/welfare maintaining policy;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration
    • F20 - International Economics - - International Factor Movements and International Business - - - General

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