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Firms' locations under demand heterogeneity

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  • Picard, Pierre M.
  • Okubo, Toshihiro

Abstract

In this paper, we develop an economic geography model in which firms sell product varieties with heterogeneous demands. We show that firms that sell products with higher demand choose to establish their plants in larger countries, which provide better access to the most frequently demanded and valuable varieties. The impact of spatial sorting depends on the skewness of the distribution of demand intensity across varieties. In a model in which only capital moves across regions, demand heterogeneity diminishes the amount of capital invested in larger countries. In a model in which the work force moves across regions, demand heterogeneity is found to eliminate dramatic changes in the location patterns and to result in the asymmetric dispersion of workers rather than their symmetric dispersion or complete agglomeration in a specific region.

Suggested Citation

  • Picard, Pierre M. & Okubo, Toshihiro, 2012. "Firms' locations under demand heterogeneity," Regional Science and Urban Economics, Elsevier, vol. 42(6), pages 961-974.
  • Handle: RePEc:eee:regeco:v:42:y:2012:i:6:p:961-974
    DOI: 10.1016/j.regsciurbeco.2012.05.001
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    Cited by:

    1. Breinlich, Holger & Ottaviano, Gianmarco I.P. & Temple, Jonathan R.W., 2014. "Regional Growth and Regional Decline," Handbook of Economic Growth,in: Handbook of Economic Growth, edition 1, volume 2, chapter 4, pages 683-779 Elsevier.
    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. Toshihiro Okubo & Pierre M. Picard & Jacques-François Thisse, 2014. "On The Impact Of Competition On Trade And Firm Location," Journal of Regional Science, Wiley Blackwell, vol. 54(5), pages 731-754, November.
    4. Ushchev, Philip & Zenou, Yves, 2015. "Price Competition in Product Variety Networks," CEPR Discussion Papers 10862, C.E.P.R. Discussion Papers.
    5. Picard, P.M., 2015. "Trade, economic geography and the choice of product quality," Regional Science and Urban Economics, Elsevier, vol. 54(C), pages 18-27.
    6. Ottaviano, Gianmarco I.P., 2012. "Agglomeration, trade and selection," Regional Science and Urban Economics, Elsevier, vol. 42(6), pages 987-997.
    7. Sergey Kichko & Pierre M. Picard, 2018. "Heterogeneity in Conformism, Firm Selection, and Home Bias," HSE Working papers WP BRP 187/EC/2018, National Research University Higher School of Economics.
    8. repec:esx:essedp:729 is not listed on IDEAS
    9. repec:eee:proeco:v:193:y:2017:i:c:p:87-97 is not listed on IDEAS
    10. Dalvai, Wilfried, 2016. "Agglomeration and the product mix," Thuenen-Series of Applied Economic Theory 145, University of Rostock, Institute of Economics.
    11. Sergey Kichko & Pierre M. Picard, 2018. "Heterogeneity in Conformism, Firm Selection, and Home Bias," HSE Working papers WP BRP 187/EC/2018, National Research University Higher School of Economics.

    More about this item

    Keywords

    Heterogeneous taste and quality; Spatial selection; Economic geography; Agglomeration; Home market effect;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • 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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