Globalization and the Inequality of Nations
The paper considers a model in which an imperfectly competitive manufacturing sector produces goods which are used both for final consumption and as intermediates. Intermediate usage creates cost and demand linkages between firms and a tendency for manufacturing agglomeration. How does globalization affect the location of manufacturing and the gains from trade? At high transport costs all countries have some manufacturing industry, but when transport costs fall below a critical value a core-periphery pattern forms spontaneously, and nations that find themselves in the periphery suffer a decline in real income. As transport costs continue to fall there comes a second stage of convergence in real incomes, in which the peripheral nations gain and the core nations may well lose.
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|Date of creation:||Sep 1994|
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References listed on IDEAS
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- Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
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The Warwick Economics Research Paper Series (TWERPS)
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- Krugman, Paul, 1991.
"Increasing Returns and Economic Geography,"
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University of Chicago Press, vol. 99(3), pages 483-499, June.
- Stephen Nickell & D. Nicolitsas, 1994.
LSE Research Online Documents on Economics
51644, London School of Economics and Political Science, LSE Library.
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