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Can Firms' Location Decisions Counteract the Balassa-Samuelson Effect ?

Author

Listed:
  • Isabelle Méjean

    (X-DEP-ECO - Département d'Économie de l'École Polytechnique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris)

Abstract

This paper examines the determinants of relative prices in a model combining a Harrod–Balassa–Samuelson (HBS) mechanism and an endogenous location of traded good producers. Besides the standard HBS effect, asymmetric productivity improvements in the traded good sector push new firms to enter the market. This benefits local consumers who save on trade costs and exerts an upward pressure on relative wages. As a consequence, relative prices in the traded good sector either increase or fall in general equilibrium. In a panel cointegration framework, the wage effect is shown to dominate. This means the HBS effect is strengthened by the relocation of traded good producers.

Suggested Citation

  • Isabelle Méjean, 2008. "Can Firms' Location Decisions Counteract the Balassa-Samuelson Effect ?," Post-Print hal-00363067, HAL.
    • Handle: RePEc:hal:journl:hal-00363067
    DOI: 10.1016/j.jinteco.2008.06.006
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    Cited by:

    1. Cacciatore, Matteo & Ghironi, Fabio & Stebunovs, Viktors, 2015. "The domestic and international effects of interstate U.S. banking," Journal of International Economics, Elsevier, vol. 95(2), pages 171-187.
    2. Cardi, Olivier & Restout, Romain, 2015. "Imperfect mobility of labor across sectors: a reappraisal of the Balassa–Samuelson effect," Journal of International Economics, Elsevier, vol. 97(2), pages 249-265.
    3. Hamano, Masashige, 2014. "The Harrod–Balassa–Samuelson effect and endogenous extensive margins," Journal of the Japanese and International Economies, Elsevier, vol. 31(C), pages 98-113.
    4. Lopcu, Kenan & Dülger, Fikret & Burgaç, Almıla, 2013. "Relative productivity increases and the appreciation of the Turkish lira," Economic Modelling, Elsevier, vol. 35(C), pages 614-621.

    More about this item

    Keywords

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    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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