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Spatial inequality, globalization, and footloose capital

  • Toshiaki Takahashi

    ()

  • Hajime Takatsuka

    ()

  • Dao-Zhi Zeng

    ()

This paper shows the equivalence of spatial inequalities in industrial location and in income by revisiting the home market effect (HME) without any homogeneous good based on a reconstructed footloose capital model. In this simple framework, spatial inequalities in industrial location and in income are the HMEs in terms of firm share and wage, respectively. We show that the larger country has a more-than-proportionate share of firms and a higher wage. Furthermore, both the wage differential and the industrial location in the larger country evolve in an inverted U-pattern when transport costs decline. Finally, we analytically examine the effects of trade liberalization on the welfare and show that both countries may gain from globalization. Copyright Springer-Verlag 2013

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File URL: http://hdl.handle.net/10.1007/s00199-011-0686-7
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Article provided by Springer in its journal Economic Theory.

Volume (Year): 53 (2013)
Issue (Month): 1 (May)
Pages: 213-238

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Handle: RePEc:spr:joecth:v:53:y:2013:i:1:p:213-238
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