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Trade and industrial location with heterogeneous labor

  • Mary Amiti
  • Christopher Pissarides

We show in the context of a new economic geography model that when labor is heterogenous trade liberalization may lead to industrial agglomeration and inter-regional trade. Labor heterogeneity gives local monopoly power to firms but also introduces variations in the quality of the job match. Matches are likely to be better when there are more firms and workers in the local market, giving rise to an agglomeration force which can offset the forces against, trade costs and the erosion of monopoly power. We derive analytically a robust agglomeration equilibrium and illustrate its properties with numerical simulations.

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File URL: http://eprints.lse.ac.uk/2475/
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Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 2475.

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Date of creation: Dec 2005
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Publication status: Published in Journal of International Economics, December, 2005, 67(2), pp. 392-412. ISSN: 0022-1996
Handle: RePEc:ehl:lserod:2475
Contact details of provider: Postal: LSE Library Portugal Street London, WC2A 2HD, U.K.
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Web page: http://www.lse.ac.uk/

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  1. Paul Krugman & Anthony J. Venables, 1995. "Globalization and the Inequality of Nations," NBER Working Papers 5098, National Bureau of Economic Research, Inc.
  2. Barbara Petrongolo & Christopher Pissarides, 2006. "Scale Effects in Markets with Search," Economic Journal, Royal Economic Society, vol. 116(508), pages 21-44, 01.
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  8. Julio J. Rotemberg & Garth Saloner, 1990. "Competition and Human Capital Accumulation: A Theory of Interregional Specialization and Trade," NBER Working Papers 3228, National Bureau of Economic Research, Inc.
  9. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  10. Andersson, Fredrik & Burgess, Simon & Lane, Julia I., 2007. "Cities, matching and the productivity gains of agglomeration," Journal of Urban Economics, Elsevier, vol. 61(1), pages 112-128, January.
  11. Guy Dumais & Glenn Ellison & Edward L Glaeser, 1998. "Geographic Concentration as a Dynamic Process," Working Papers 98-3, Center for Economic Studies, U.S. Census Bureau.
  12. Mary Amiti & Lisa Ann Cameron, 2004. "Economic Geography and Wages; The Case of Indonesia," IMF Working Papers 04/79, International Monetary Fund.
  13. Lisa A. Cameron & Mary Amiti, 2004. "Economic Geography and Wages," Econometric Society 2004 Australasian Meetings 253, Econometric Society.
  14. Sato, Yasuhiro, 2001. "Labor Heterogeneity in an Urban Labor Market," Journal of Urban Economics, Elsevier, vol. 50(2), pages 313-337, September.
  15. d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, vol. 47(5), pages 1145-50, September.
  16. Economides, Nicholas, 1989. "Symmetric equilibrium existence and optimality in differentiated product markets," Journal of Economic Theory, Elsevier, vol. 47(1), pages 178-194, February.
  17. Helsley, Robert W. & Strange, William C., 1990. "Matching and agglomeration economies in a system of cities," Regional Science and Urban Economics, Elsevier, vol. 20(2), pages 189-212, September.
  18. repec:dgr:uvatin:2002061 is not listed on IDEAS
  19. Rosenthal, Stuart S. & Strange, William C., 2001. "The Determinants of Agglomeration," Journal of Urban Economics, Elsevier, vol. 50(2), pages 191-229, September.
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