« Coordination Costs and the Geography of Production »

In a model à la Venables of 1996 Venables, A. J. (1996) Equilibrium locations of vertically linked industries, International Economic review, 37, 341–359., we distinguish two kinds of intermediate goods: complex goods that entail endogenous coordination costs, and simple goods that do not. Coordination costs depend on geographical distance and the number of intermediate goods used in the production process. In the final stage of integration, there are two possible spatial configurations: (1) a symmetric configuration and (2) a partial core–periphery equilibrium, comprised of a core region that produces the final and complex intermediate goods, and a periphery that produces simple intermediate goods. We discuss some policy implications of this multiple-equilibria outcome.