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Geographical Concentration, Comparative Advantage, and Public Policy

  • Toshihiro Okubo



This paper analyzes the geographical concentration and diversification of industries in the Continuum-of-Goods Trade Model in the presence of labor migration, comparative advantage, and external increasing returns to scale. In the model, higher transportation costs lead to concentration in one region, and lower transportation costs lead to diversification between the regions. For intermediate transportation costs, asymmetric diversification becomes a stable equilibrium through a reduction in the range of nontraded goods due to external increasing returns to scale and transportation costs. However, asymmetric equilibrium is an inefficient outcome: Pareto dominated by the other equilibria. To prevent this inefficient equilibrium, subsidies may be useful to sustain symmetric diversification.

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Paper provided by Economics Section, The Graduate Institute of International Studies in its series IHEID Working Papers with number 14-2004.

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Length: 28
Date of creation: Jul 2004
Date of revision:
Handle: RePEc:gii:giihei:heiwp14-2004
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  8. Gianmarco Ottaviano & Takatoshi Tabuchi & Jacques-Francois Tissse, 1999. "Agglomeration and Trade Revisited," CIRJE F-Series CIRJE-F-65, CIRJE, Faculty of Economics, University of Tokyo.
  9. K.H. Midelfart & H.G. Overman & S.J. Redding & A.J. Venables, 2000. "The location of European industry," European Economy - Economic Papers 142, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  10. Edward L. Glaeser & Glenn Ellison, 1999. "The Geographic Concentration of Industry: Does Natural Advantage Explain Agglomeration?," American Economic Review, American Economic Association, vol. 89(2), pages 311-316, May.
  11. Karen Helene Midelfart-Knarvik & Henry G. Overman, 2002. "Delocation and European integration: is structural spending justified?," Economic Policy, CEPR;CES;MSH, vol. 17(35), pages 321-359, October.
  12. Vernon Henderson, 1999. "Marshall's Economies," NBER Working Papers 7358, National Bureau of Economic Research, Inc.
  13. Overman, Henry G & Ulltveit-Moe, Karen-Helene & Venables, Anthony J, 2000. "Comparative Advantage and Economic Geography: Estimating the Location of Production in the EU," CEPR Discussion Papers 2618, C.E.P.R. Discussion Papers.
  14. Goodfriend, Marvin & McDermott, John, 1995. "Early Development," American Economic Review, American Economic Association, vol. 85(1), pages 116-33, March.
  15. Itoh, Motoshige & Kiyono, Kazuharu, 1987. "Welfare-Enhancing Export Subsidies," Journal of Political Economy, University of Chicago Press, vol. 95(1), pages 115-37, February.
  16. 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.
  17. Martin, Philippe & Rogers, Carol Ann, 1994. "Industrial Location and Public Infrastructure," CEPR Discussion Papers 909, C.E.P.R. Discussion Papers.
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