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Resisting Economic Integration when Industry Location is Uncertain

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This paper analyses the political determination of transportation costs in a new economic geography model. In a benchmark case with certainty about where agglomeration takes place, a majority of voters favour economic integration and the resulting equilibrium is an industrialised core and a de-industrialised periphery. Allowing for uncertainty, a high level of trade costs may win the election and maintain the initial distribution of industry. The reason is that a coalition of risk-averse immobile factors of production votes for the status quo due to uncertainty about which region will attract industry if economic integration is pursued. Finally, the standard view that agglomeration is unambiguously beneficial to residents in the industrial centre is challenged by introducing costs of undertaking economic integration.

Suggested Citation

  • Gallo, Fredrik, 2006. "Resisting Economic Integration when Industry Location is Uncertain," Working Papers 2006:22, Lund University, Department of Economics.
  • Handle: RePEc:hhs:lunewp:2006_022
    Note: This paper replaces WP 2005:32 "Determining the Level of Transportation Costs in the Core-Periphery Model: a Majority Voting Approach"
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    Cited by:

    1. Alexander Haupt & Silke Uebelmesser, 2010. "Integration, Mobility, and Human Capital Formation," CESifo Working Paper Series 3190, CESifo.
    2. Alexander Haupt & Silke Uebelmesser, 2014. "Labour Market Integration, Human Capital Formation, and Mobility," Jena Economic Research Papers 2014-020, Friedrich-Schiller-University Jena.

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    More about this item

    Keywords

    footloose entrepreneur model; majority voting; new economic geography; regional policy;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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