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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
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    1. Aghion, P. & Howitt, P., 1990. "A Model Of Growth Through Creative Destruction," DELTA Working Papers 90-12, DELTA (Ecole normale supérieure).
    2. PICARD, Pierre M. & ZENG, Dao-Zhi, . "Agricultural sector and industrial agglomeration," CORE Discussion Papers RP -1893, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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    4. Davis, D.R., 1997. "The Home Market, Trade, and Industrial Structure," Papers 597, Harvard - Institute for International Development.
    5. Diego Puga, 1996. "The Rise and Fall of Regional Inequalities," CEP Discussion Papers dp0314, Centre for Economic Performance, LSE.
    6. 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.
    7. Forslid, Rikard & Wooton, Ian, 1999. "Comparative Advantage and the Location of Production," CEPR Discussion Papers 2118, C.E.P.R. Discussion Papers.
    8. Antonio Ricci, Luca, 1999. "Economic geography and comparative advantage:: Agglomeration versus specialization," European Economic Review, Elsevier, vol. 43(2), pages 357-377, February.
    9. Crozet, Matthieu & Trionfetti, Federico, 2008. "Trade costs and the Home Market Effect," Journal of International Economics, Elsevier, vol. 76(2), pages 309-321, December.
    10. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
    11. 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.
    12. Frédéric Robert-Nicoud, 2006. "Off-Shoring of Business Services and De-Industrialization: Threat or Opportunity - and for Whom?," CEP Discussion Papers dp0734, Centre for Economic Performance, LSE.
    13. Puga, Diego, 2001. "European Regional Policies in Light of Recent Location Theories," CEPR Discussion Papers 2767, C.E.P.R. Discussion Papers.
    14. 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.
    15. Baldwin, Richard & Martin, Philippe & Ottaviano, Gianmarco, 1998. "Global Income Divergence, Trade and Industrialization: The Geography of Growth Take-Offs," CEPR Discussion Papers 1803, C.E.P.R. Discussion Papers.
    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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