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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. THISSE, Jacques-François & ZENOU, Yves, . "Skill mismatch and unemployment," CORE Discussion Papers RP 1480, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  5. 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, June.
  6. Fredrik Andersson & Simon Burgess & Julia Lane, 2004. "Cities, Matching and the Productivity Gains of Agglomeration," CEP Discussion Papers dp0648, Centre for Economic Performance, LSE.
  7. d'ASPREMONT, Claude & GABSZEWICZ, Jean J. & THISSE, Jacques-François, . "On Hotelling's "Stability in competition"," CORE Discussion Papers RP 385, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Sato, Yasuhiro, 2001. "Labor Heterogeneity in an Urban Labor Market," Journal of Urban Economics, Elsevier, vol. 50(2), pages 313-337, September.
  9. Petrongolo, Barbara & Pissarides, Christopher, 2002. "Scale Effects in Markets with Search," CEPR Discussion Papers 3648, C.E.P.R. Discussion Papers.
  10. Lisa A. Cameron & Mary Amiti, 2004. "Economic Geography and Wages," Econometric Society 2004 Australasian Meetings 253, Econometric Society.
  11. Rosenthal, Stuart S. & Strange, William C., 2001. "The Determinants of Agglomeration," Journal of Urban Economics, Elsevier, vol. 50(2), pages 191-229, September.
  12. Mary Amiti & Lisa Ann Cameron, 2004. "Economic Geography and Wages: The Case of Indonesia," IMF Working Papers 04/79, International Monetary Fund.
  13. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  14. 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.
  15. Gautier, P.A. & Teulings, C.N., 2009. "Search and the city," Regional Science and Urban Economics, Elsevier, vol. 39(3), pages 251-265, May.
  16. Paul Krugman, 1992. "Geography and Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262610868, June.
  17. Economides, Nicholas, 1989. "Symmetric equilibrium existence and optimality in differentiated product markets," Journal of Economic Theory, Elsevier, vol. 47(1), pages 178-194, February.
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