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The spatial selection of heterogeneous firms

Author

Listed:
  • OKUBO, Toshihiro
  • PICARD, Pierre M.
  • THISSE, Jacques-François

Abstract

The aim of this paper is to study the spatial selection of firms once it is recognized that heterogeneous firms typically choose different locations in respond to market integration of regions having different sizes. Specifically, we show that decreasing trade costs leads to the gradual agglomeration of efficient firms in the large region because these firms are able to survive in a more competitive environment. In contrast, high-cost firms seek protection against competition from the efficient firms by establishing themselves in the small region. However, when the spatial separation of markets ceases to be a sufficient protection against competition from the low-cost firms, high-cost firms also choose to set up in the larger market where they have access to a bigger pool of consumers. This leads to the following prediction: the relationship between economic integration and interregional productivity differences first increases and then decreases with market integration.
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Suggested Citation

  • OKUBO, Toshihiro & PICARD, Pierre M. & THISSE, Jacques-François, 2010. "The spatial selection of heterogeneous firms," LIDAM Reprints CORE 2257, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:2257
    DOI: 10.1016/j.jinteco.2010.07.003
    Note: In : Journal of International Economics, 82(2), 230-237, 2010
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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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