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Trade Policy and the Third World Metropolis

Author

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  • Krugman, Paul
  • Elizondo, Raul

Abstract

Many of the world's largest cities are now in developing countries. We develop a simple theoretical model, inspired by the case of Mexico, that explains the existence of such giant cities as a consequence of the strong forward and backward linkages that arise when manufacturing tries to serve a small domestic market. The model implies that these linkages are much weaker when the economy is open to international trade -- in other words, the giant Third World metropolis is an unintended by-product of importsubstitution policies, and will tend to shrink as developing countries liberalize.

Suggested Citation

  • Krugman, Paul & Elizondo, Raul, 1992. "Trade Policy and the Third World Metropolis," Institute for Policy Reform Working Paper Series 294813, Institute for Policy Reform.
    • Handle: RePEc:ags:iprwps:294813
    DOI: 10.22004/ag.econ.294813
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    References listed on IDEAS

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    1. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-499, June.
    2. Williamson, Jeffrey G., 1988. "Migration and urbanization," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 1, chapter 11, pages 425-465, Elsevier.
    3. 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.
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    Cited by:

    1. Gajwani, Kiran & Kanbur, Ravi & Zhang, Xiaobo, 2006. "Comparing the evolution of spatial inequality in China and India: a fifty-year perspective," DSGD discussion papers 44, International Food Policy Research Institute (IFPRI).

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