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Trade and Industrial Location with Heterogeneous Labor

  • International Monetary Fund

We show in the context of a new economic geography model that when labor is heterogenous trade liberalization may lead to industrial agglomeration and interregional trade. Labor heterogeneity gives local monopoly power to firms but also introduces variations in the quality of the job match. Matches are likely to be better when there are more firms and workers in the local market, giving rise to an agglomeration force that can offset the forces against trade costs and the erosion of monopoly power. We derive analytically a robust agglomeration equilibrium and illustrate its properties with numerical simulations.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/103.

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Length: 26
Date of creation: 01 Jun 2004
Date of revision:
Handle: RePEc:imf:imfwpa:04/103
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  1. Paul Krugman & Anthony J. Venables, 1995. "Globalization and the Inequality of Nations," NBER Working Papers 5098, National Bureau of Economic Research, Inc.
  2. Petrongolo, Barbara & Pissarides, Christopher, 2002. "Scale Effects in Markets with Search," CEPR Discussion Papers 3648, C.E.P.R. Discussion Papers.
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  8. Economides, Nicholas, 1989. "Symmetric equilibrium existence and optimality in differentiated product markets," Journal of Economic Theory, Elsevier, vol. 47(1), pages 178-194, February.
  9. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476, December.
  10. Helsley, Robert W. & Strange, William C., 1990. "Matching and agglomeration economies in a system of cities," Regional Science and Urban Economics, Elsevier, vol. 20(2), pages 189-212, September.
  11. Lisa A. Cameron & Mary Amiti, 2004. "Economic Geography and Wages," Econometric Society 2004 Australasian Meetings 253, Econometric Society.
  12. Guy Dumais & Glenn Ellison & Edward L Glaeser, 1998. "Geographic Concentration as a Dynamic Process," Working Papers 98-3, Center for Economic Studies, U.S. Census Bureau.
  13. Rosenthal, Stuart S. & Strange, William C., 2001. "The Determinants of Agglomeration," Journal of Urban Economics, Elsevier, vol. 50(2), pages 191-229, September.
  14. repec:hhs:iuiwop:430 is not listed on IDEAS
  15. Julio J. Rotemberg & Garth Saloner, 1990. "Competition and Human Capital Accumulation: A Theory of Interregional Specialization and Trade," NBER Working Papers 3228, National Bureau of Economic Research, Inc.
  16. Sato, Yasuhiro, 2001. "Labor Heterogeneity in an Urban Labor Market," Journal of Urban Economics, Elsevier, vol. 50(2), pages 313-337, September.
  17. Paul Krugman, 1992. "Geography and Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262610868, December.
  18. Mary Amiti & Lisa Ann Cameron, 2004. "Economic Geography and Wages; The Case of Indonesia," IMF Working Papers 04/79, International Monetary Fund.
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