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The spatial selection of heterogeneous firms

Listed author(s):
  • Toshihiro Okubo

    (Kobe University)

  • Pierre Picard

    (CORE - Center of Operation Research and Econometrics [Louvain] - UCL - Université Catholique de Louvain, CREA - Center for Research in Economic Analysis - Uni.lu - Université du Luxembourg)

  • Jacques-François Thisse

    (CORE - Center of Operation Research and Econometrics [Louvain] - UCL - Université Catholique de Louvain, PSE - Paris-Jourdan Sciences Economiques - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics, CEPR - Center for Economic Policy Research - CEPR)

We show that heterogeneous firms choose different locations in response to market integration. Specifically, decreasing trade costs lead to the gradual agglomeration of efficient firms in the larger country where they have access to a bigger pool of consumers. In contrast, high-cost firms seek protection against competition from efficient firms by locating in the smaller country. However, when the spatial separation of markets ceases to be a sufficient protection against foreign competition, high-cost firms choose to set up in the larger market. Hence, the relationship between economic integration and international productivity gap first increases and then decreases with market integration.

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Paper provided by HAL in its series Post-Print with number halshs-00754412.

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Date of creation: Nov 2010
Publication status: Published in Journal of International Economics, Elsevier, 2010, 82 (2), pp.230-237. <10.1016/j.jinteco.2010.07.003>
Handle: RePEc:hal:journl:halshs-00754412
DOI: 10.1016/j.jinteco.2010.07.003
Note: View the original document on HAL open archive server: https://hal-pjse.archives-ouvertes.fr/halshs-00754412
Contact details of provider: Web page: https://hal.archives-ouvertes.fr/

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