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Trading Arrangements and Industrial Development

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  • Puga, Diego
  • Venables, Anthony J

Abstract

This article outlines a new approach for analyzing the role of trade in promoting industrial development. It offers an explanation as to why firms are reluctant to move to countries with lower labor costs and shows how trade liberalization can change the incentives for firms to locate in developing countries. It models economic development as the spread of concentrations of firms from country to country. Different trading arrangements may have a major impact on this development process. By changing the attractiveness of countries as a base for manufacturing production, they can potentially trigger--or postpone--industrial development. The analysis shows that unilaterally liberalizing imports of manufactures can promote industrialization but that membership in a preferential trading arrangement is likely to create larger gains. South-South preferential trading arrangements will be sensitive to the market size of member states, while North-South arrangements seem to offer better prospects for participating southern countries, if not for excluded countries. Copyright 1998 by Oxford University Press.

Suggested Citation

  • Puga, Diego & Venables, Anthony J, 1998. "Trading Arrangements and Industrial Development," The World Bank Economic Review, World Bank Group, vol. 12(2), pages 221-249, May.
  • Handle: RePEc:oup:wbecrv:v:12:y:1998:i:2:p:221-49
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    References listed on IDEAS

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    1. Puga, Diego & Venables, Anthony J., 1996. "The Spread of Industry: Spatial Agglomeration in Economic Development," Journal of the Japanese and International Economies, Elsevier, vol. 10(4), pages 440-464, December.
    2. Antonio Spilimbergo & Gordon H. Hanson, 1999. "Illegal Immigration, Border Enforcement, and Relative Wages: Evidence from Apprehensions at the U.S.-Mexico Border," American Economic Review, American Economic Association, vol. 89(5), pages 1337-1357, December.
    3. Hanson, Gordon H., 1998. "Regional adjustment to trade liberalization," Regional Science and Urban Economics, Elsevier, vol. 28(4), pages 419-444, July.
    4. Paul Krugman & Anthony J. Venables, 1995. "Globalization and the Inequality of Nations," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 857-880.
    5. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
    6. Jaime De Melo & Arvind Panagariya & Dani Rodrik, 2015. "The New Regionalism: A Country Perspective," World Scientific Book Chapters, in: Developing Countries in the World Economy, chapter 14, pages 323-357, World Scientific Publishing Co. Pte. Ltd..
    7. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    8. Puga, Diego & Venables, Anthony J., 1997. "Preferential trading arrangements and industrial location," Journal of International Economics, Elsevier, vol. 43(3-4), pages 347-368, November.
    9. Baldwin, Richard E. & Venables, Anthony J., 1995. "Regional economic integration," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 31, pages 1597-1644, Elsevier.
    10. Hanson, Gordon H, 1997. "Increasing Returns, Trade and the Regional Structure of Wages," Economic Journal, Royal Economic Society, vol. 107(440), pages 113-133, January.
    11. Richard Baldwin, 1993. "A Domino Theory of Regionalism," NBER Working Papers 4465, National Bureau of Economic Research, Inc.
    12. Antonio Spilimbergo & Gordon H. Hanson, 1999. "Illegal Immigration, Border Enforcement, and Relative Wages: Evidence from Apprehensions at the U.S.-Mexico Border," American Economic Review, American Economic Association, vol. 89(5), pages 1337-1357, December.
    13. repec:hhs:iuiwop:430 is not listed on IDEAS
    14. Venables, Anthony J., 1996. "Trade policy, cumulative causation, and industrial development," Journal of Development Economics, Elsevier, vol. 49(1), pages 179-197, April.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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