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Divergence, wage-gap and geography

  • Andres, Frédéric
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    We develop a geographic growth model where nominal wages are allowed to diverge between the two considered countries. Removing the standard assumption entailing that both countries always own a traditional sector, we argue that, as trade gets freer, the traditional sector of one country might cease to exist so that wages increase: it gives rise to an additional dispersion force independent of trade costs. Hence, the core-periphery outcome might never be reached, which contradicts previous literature’s results. We also question a hallmark of the literature since we argue that full agglomeration of firms might actually lead to slower growth for both countries.

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    File URL: http://basepub.dauphine.fr/xmlui/bitstream/123456789/4070/1/andres.pdf
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    Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/4070.

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    Date of creation: 2006
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    Publication status: Published in Economie internationale, 2006, Vol. 4, no. 108. pp. 83-112.Length: 29 pages
    Handle: RePEc:dau:papers:123456789/4070
    Contact details of provider: Web page: http://www.dauphine.fr/en/welcome.html

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    1. Krugman, Paul R & Venables, Anthony J, 1995. "Globalization and the Inequality of Nations," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 857-80, November.
    2. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-51, March.
    3. Frédéric Robert-Nicoud, 2006. "Off-shoring of business services and de-industrialization: threat or opportunity - and for whom?," LSE Research Online Documents on Economics 19847, London School of Economics and Political Science, LSE Library.
    4. Antonio Ricci, Luca, 1999. "Economic geography and comparative advantage:: Agglomeration versus specialization," European Economic Review, Elsevier, vol. 43(2), pages 357-377, February.
    5. Puga, Diego, 2001. "European Regional Policies in Light of Recent Location Theories," CEPR Discussion Papers 2767, C.E.P.R. Discussion Papers.
    6. MION, Giordano, 2003. "Spatial externalities and empirical analysis: the case of Italy," CORE Discussion Papers 2003015, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    7. Baldwin, Richard E & Martin, Philippe & Ottaviano, Gianmarco I P, 2001. " Global Income Divergence, Trade, and Industrialization: The Geography of Growth Take-Offs," Journal of Economic Growth, Springer, vol. 6(1), pages 5-37, March.
    8. Glass, Amy Jocelyn & Saggi, Kamal, 2002. "Intellectual property rights and foreign direct investment," Journal of International Economics, Elsevier, vol. 56(2), pages 387-410, March.
    9. Donald R. Davis, 1997. "The Home Market, Trade and Industrial Structure," Harvard Institute of Economic Research Working Papers 1800, Harvard - Institute of Economic Research.
    10. Diego Puga, 1996. "The Rise and Fall of Regional Inequalities," CEP Discussion Papers dp0314, Centre for Economic Performance, LSE.
    11. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
    12. Rikard Forslid & Ian Wooton, 2003. "Comparative Advantage and the Location of Production," Review of International Economics, Wiley Blackwell, vol. 11(4), pages 588-603, 09.
    13. PICARD, Pierre & ZENG, Dao-Zhi, 2003. "Agricultural sector and industrial agglomeration," CORE Discussion Papers 2003022, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    14. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
    15. Crozet, Matthieu & Trionfetti, Federico, 2008. "Trade costs and the Home Market Effect," Journal of International Economics, Elsevier, vol. 76(2), pages 309-321, December.
    16. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
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