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Agglomeration and comparative advantage in vertically-related firms

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  • José Pedro Pontes

Abstract

This paper models, in game-theoretical terms, the location of two vertically-linked monopolistic firms in a spatial economy formed by a large, high labor cost country and a relatively small, low labor cost country. It is found that the decrease in transport costs shifts firms towards the low production cost country. This process takes two different forms: in labor-intensive industries it leads to spatial fragmentation; in industries with strong input-output relations, agglomerations are conserved, although they shift toward the low labor cost country.

Suggested Citation

  • José Pedro Pontes, 2006. "Agglomeration and comparative advantage in vertically-related firms," Working Papers Department of Economics 2006/17, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    • Handle: RePEc:ise:isegwp:wp172006
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    References listed on IDEAS

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    1. Amiti, Mary, 2005. "Location of vertically linked industries: agglomeration versus comparative advantage," European Economic Review, Elsevier, vol. 49(4), pages 809-832, May.
    2. M Fujita, 1981. "Location of Firms with Input Transactions," Environment and Planning A, , vol. 13(11), pages 1401-1414, November.
    3. Mayer, Thierry, 2000. "Spatial Cournot competition and heterogeneous production costs across locations," Regional Science and Urban Economics, Elsevier, vol. 30(3), pages 325-352, May.
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    Keywords

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    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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