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Countries, regions and trade: on the welfare impacts of economic integration

  • BEHRENS, Kristian
  • GAIGNE, Carl
  • OTTAVIANO, Gianmarco I.P.
  • THISSE, Jacques-François

We study the impact of falling international trade costs and falling national transport costs on the economic geography of countries involved in an integration process. Each country is formed by two regions between which labor is mobile, whereas there is no international mobility. Goods can be traded both nationally and internationally at positive, but different, costs. A decrease in trade costs and/or in transport costs has a direct impact on prices and wages, which allows us to account for the impact of changes in these parameters on the economic geography and welfare of each country. We show that, as trade barriers fall, the benefits of integration come after its costs. We also show that national transport policies are of the beggar-thy-neighbor type. On both counts, policy coordination is required in the process of economic integration.

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File URL: http://dx.doi.org/10.1016/j.euroecorev.2006.08.005
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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers RP with number 1936.

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Handle: RePEc:cor:louvrp:1936
Note: In : European Economic Review, 51, 1277-1301, 2007
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  1. Behrens, Kristian & Gaigne, Carl & Ottaviano, Gianmarco I.P. & Thisse, Jacques-Francois, 2006. "How density economies in international transportation link the internal geography of trading partners," Journal of Urban Economics, Elsevier, vol. 60(2), pages 248-263, September.
  2. Picard, Pierre M. & Zeng, Dao-Zhi, 2005. "Agricultural sector and industrial agglomeration," Journal of Development Economics, Elsevier, vol. 77(1), pages 75-106, June.
  3. Greenhut, Melvin L, 1981. "Spatial Pricing in the United States, West Germany and Japan," Economica, London School of Economics and Political Science, vol. 48(189), pages 79-86, February.
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  6. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  7. Charlot, Sylvie & Gaigne, Carl & Robert-Nicoud, Frederic & Thisse, Jacques-Francois, 2006. "Agglomeration and welfare: The core-periphery model in the light of Bentham, Kaldor, and Rawls," Journal of Public Economics, Elsevier, vol. 90(1-2), pages 325-347, January.
  8. Charles Engel & John H. Rogers, 1995. "How wide is the border?," International Finance Discussion Papers 498, Board of Governors of the Federal Reserve System (U.S.).
  9. Winters, L. Alan & Chang, Won, 2000. "Regional integration and import prices: an empirical investigation," Journal of International Economics, Elsevier, vol. 51(2), pages 363-377, August.
  10. Head, Keith & Mayer, Thierry, 2004. "The empirics of agglomeration and trade," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 59, pages 2609-2669 Elsevier.
  11. Won Chang & L. Alan Winters, 2002. "How Regional Blocs Affect Excluded Countries: The Price Effects of MERCOSUR," American Economic Review, American Economic Association, vol. 92(4), pages 889-904, September.
  12. Keith Head & Thierry Mayer, 2000. "Non-Europe : The Magnitude and Causes of Market Fragmentation in the EU," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00267441, HAL.
  13. Elisenda Paluzie Hernandez, 1999. "Trade policy and regional inequalities," Working Papers in Economics 48, Universitat de Barcelona. Espai de Recerca en Economia.
  14. Marius Brülhart, & Rolf Traeger, 2003. "An Account of Geographic Concentration Patterns in Europe," The Institute for International Integration Studies Discussion Paper Series iiisdp02, IIIS.
  15. Kristian Behrens & Carl Gaigné & Gianmarco I.P. Ottaviano & Jacques-François Thisse, 2006. "Is remoteness a locational disadvantage?," Journal of Economic Geography, Oxford University Press, vol. 6(3), pages 347-368, June.
  16. Monfort, Philippe & Nicolini, Rosella, 1998. "Regional Convergence and International Integration," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1998022, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  17. Martin, Philippe & Rogers, Carol Ann, 1994. "Industrial Location and Public Infrastructure," CEPR Discussion Papers 909, C.E.P.R. Discussion Papers.
  18. Gianmarco Ottaviano & Takatoshi Tabuchi & Jacques-FranÁois Thisse, 2002. "Agglomeration and Trade Revisited," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(2), pages 409-436, May.
  19. P. Demetriades, 1998. "International Aspects of Public Infrastructure Investment," CIBS Research Papers in International Business 8-98, London South Bank University CIBS.
  20. Krugman, Paul & Elizondo, Raul Livas, 1996. "Trade policy and the Third World metropolis," Journal of Development Economics, Elsevier, vol. 49(1), pages 137-150, April.
  21. Alberto F. Ades & Edward L. Glaeser, 1995. "Trade and Circuses: Explaining Urban Giants," The Quarterly Journal of Economics, Oxford University Press, vol. 110(1), pages 195-227.
  22. Quah, Danny T., 1996. "Empirics for economic growth and convergence," European Economic Review, Elsevier, vol. 40(6), pages 1353-1375, June.
  23. Holger C. Wolf, 2000. "Intranational Home Bias In Trade," The Review of Economics and Statistics, MIT Press, vol. 82(4), pages 555-563, November.
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