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Firm Location, Trade and Economic Integration

Author

Listed:
  • Andaluz, Joaquín

    (University of Zaragoza)

  • Gil, Agustín

    (University of Zaragoza)

Abstract

The aim of this paper is to analyse how a process of economic integration between two adjacent countries with different transport costs (different levels of development) affects firms’ decisions on location and prices. Considering the situation where one firm is located in each country and manufactures a product that is imported by the more developed country, we find that when there are barriers to trade one of the firms tends to locate on the common frontier and the other at the far extreme. By contrast, with full economic integration, both firms tend to maximise differentiation, locating themselves at the non-neighbouring extremes, which leads to higher prices and profits. Therefore, the firm located in the more developed country increases its market share.

Suggested Citation

  • Andaluz, Joaquín & Gil, Agustín, 2002. "Firm Location, Trade and Economic Integration," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 17, pages 671-686.
  • Handle: RePEc:ris:integr:0214
    as

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    More about this item

    Keywords

    Market Integration; Price-Location Competition; Transport Costs;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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