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Trade and industrial location with heterogeneous labor

  • Amiti, Mary
  • Pissarides, Christopher A.

We show in the context of a new economic geography model that when labor is heterogenous trade liberalization may lead to industrial agglomeration and interregional trade. Labor heterogeneity gives local monopoly power to firms but also introduces variations in the quality of the job match. Matches are likely to be better when there are more firms and workers in the local market, giving rise to an agglomeration force that can offset the forces against trade costs and the erosion of monopoly power. We derive analytically a robust agglomeration equilibrium and illustrate its properties with numerical simulations.

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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 67 (2005)
Issue (Month): 2 (December)
Pages: 392-412

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Handle: RePEc:eee:inecon:v:67:y:2005:i:2:p:392-412
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

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  1. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  2. Andersson, Fredrik & Burgess, Simon & Lane, Julia I., 2007. "Cities, matching and the productivity gains of agglomeration," Journal of Urban Economics, Elsevier, vol. 61(1), pages 112-128, January.
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  12. Paul Krugman, 1992. "Geography and Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262610868, March.
  13. Mary Amiti & Lisa Cameron, 2007. "Economic Geography and Wages," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 15-29, February.
  14. Economides, Nicholas, 1989. "Symmetric equilibrium existence and optimality in differentiated product markets," Journal of Economic Theory, Elsevier, vol. 47(1), pages 178-194, February.
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  17. repec:hhs:iuiwop:430 is not listed on IDEAS
  18. Mary Amiti & Lisa Ann Cameron, 2004. "Economic Geography and Wages; The Case of Indonesia," IMF Working Papers 04/79, International Monetary Fund.
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