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Trade Liberalisation and Agglomeration with Firm Heterogeneity - Forward and Backward Linkages

This paper studies the impact of trade costs reduction on geographical concentration in the presence of firm heterogeneity and overhead type of export fixed costs. Firm heterogeneity with the export fixed costs hampers full agglomeration through weakening the forward and backward linkages and fortifying the market crowding effect. Rather than catastrophic agglomeration that the standard new economic geography models have long suggested, trade liberalisation causes gradual agglomeration. Also, trade liberalisation never produces a perfect convergence in welfare for the periphery, which loses, and the core, which gains. Even free trade never equalises the welfare between core and periphery, i.e. trade liberalisation does not eliminate inequality among nations.

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File URL: http://repec.graduateinstitute.ch/pdfs/Working_papers/HEIWP17-2006.pdf
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Paper provided by Economics Section, The Graduate Institute of International Studies in its series IHEID Working Papers with number 17-2006.

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Length: 30 pages
Date of creation: Apr 2006
Date of revision:
Handle: RePEc:gii:giihei:heiwp16-2006
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  1. Facundo Albornoz and Gregory Corcos, 2005. "Subsidy Competition in Integrating Economies," Discussion Papers 05-14, Department of Economics, University of Birmingham.
  2. Barros, Pedro P & Cabral, Luis, 2000. "Competing for Foreign Direct Investment," Review of International Economics, Wiley Blackwell, vol. 8(2), pages 360-71, May.
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  7. Sofronis Clerides & Saul Lach & James Tybout, 1996. "Is "learning-by-exporting" important? Micro-dynamic evidence from Colombia, Mexico and Morocco," Finance and Economics Discussion Series 96-30, Board of Governors of the Federal Reserve System (U.S.).
  8. Jonathan Eaton & Samuel Kortum & Francis Kramarz, 2004. "Dissecting Trade: Firms, Industries, and Export Destinations," NBER Working Papers 10344, National Bureau of Economic Research, Inc.
  9. Baldwin, Richard & Okubo, Toshihiro, 2006. "Agglomeration, Offshoring and Heterogenous Firms," CEPR Discussion Papers 5663, C.E.P.R. Discussion Papers.
  10. Toshihiro Okubo & Vincent Rebeyrol, 2006. "Home Market Effect and Regulation Costs - Homogeneous Firm and Heterogeneous Firm Trade Models," IHEID Working Papers 02-2006, Economics Section, The Graduate Institute of International Studies.
  11. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2003. "Export versus FDI," NBER Working Papers 9439, National Bureau of Economic Research, Inc.
  12. Dupont, Vincent & Martin, Philippe, 2003. "Subsidies to Poor Regions and Inequalities: Some Unpleasant Arithmetic," CEPR Discussion Papers 4107, C.E.P.R. Discussion Papers.
  13. Ottaviano, Gianmarco & Melitz, Marc, 2008. "Market Size, Trade, and Productivity," Scholarly Articles 3229096, Harvard University Department of Economics.
  14. Torsten Persson & Guido Tabellini, 2002. "Political Economics: Explaining Economic Policy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661314, June.
  15. Andrew B. Bernard & J. Bradford Jensen, 2004. "Why Some Firms Export," The Review of Economics and Statistics, MIT Press, vol. 86(2), pages 561-569, May.
  16. Fumagalli, Chiara, 2003. "On the welfare effects of competition for foreign direct investments," European Economic Review, Elsevier, vol. 47(6), pages 963-983, December.
  17. Andrew B Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000. "Plants and productivity in international trade," Working Papers 00-08, Center for Economic Studies, U.S. Census Bureau.
  18. Bee Yan Aw & Sukkyun Chung & Mark J. Roberts, 1998. "Productivity and the Decision to Export: Micro Evidence from Taiwan and South Korea," NBER Working Papers 6558, National Bureau of Economic Research, Inc.
  19. Sofronis K. Clerides & Saul Lach & James R. Tybout, 1998. "Is Learning by Exporting Important? Micro-Dynamic Evidence from Colombia, Mexico, and Morocco," The Quarterly Journal of Economics, Oxford University Press, vol. 113(3), pages 903-947.
  20. Richard E. Baldwin & Toshihiro Okubo, 2006. "Heterogeneous firms, agglomeration and economic geography: spatial selection and sorting," Journal of Economic Geography, Oxford University Press, vol. 6(3), pages 323-346, June.
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