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Trade, industrial location and environmental consciousness

Author

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  • Sotiris Karkalakos

    () (Economics, Keele University)

Abstract

It is shown in the context of a new economic geography that, when capital is heterogeneous (a degree of environmental sensitivity), then trade liberalization may lead to industrial agglomeration and inter-regional trade. Capital heterogeneity gives local monopsony power to firms but also introduces variations in the quality of the match. Matches occur, under environmental consciousness assumption, giving rise to an agglomeration force, which can offset the forces against, trade costs and the erosion of monopsony power. A robust agglomeration equilibrium is derived analytically and shows that pollution can provide a motive for trade by spatially concentrated industries with environmental sensitivities.

Suggested Citation

  • Sotiris Karkalakos, 2007. "Trade, industrial location and environmental consciousness," Keele Economics Research Papers KERP 2007/15, Centre for Economic Research, Keele University.
  • Handle: RePEc:kee:kerpuk:2007/15
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    File URL: http://www.keele.ac.uk/depts/ec/wpapers/kerp0715.pdf
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    Keywords

    Agglomeration; Pollution; Matching.;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
    • 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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