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On the development strategy of countries of intermediate size -An analysis of heterogenous firms in a multiregion framework

Author

Listed:
  • Rikard Forslid

    (Stockholm University (Sweden) and CEPR (UK))

  • Toshihiro Okubo

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

Abstract

This paper compares two policies: trade cost reduction and firm relocation cost reduction using a three-country version of a heterogeneous-firms economic geography model, where the three countries have different market (population) size. We show how the effects of the two policies differ, in particular, for the country of intermediate size. Unless the intermediate country is very small, it will gain industry when relocation costs are reduced, but lose industry when trade costs are reduced. The smallest country loses industry in both cases, but only experiences lower welfare in the case of lower relocation costs. Thus, the ranking of the policies from the point of view of the two small and intermediate countries tends to be the opposite.

Suggested Citation

  • Rikard Forslid & Toshihiro Okubo, 2010. "On the development strategy of countries of intermediate size -An analysis of heterogenous firms in a multiregion framework," Discussion Paper Series DP2010-36, Research Institute for Economics & Business Administration, Kobe University.
    • Handle: RePEc:kob:dpaper:dp2010-36
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    File URL: https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2010-36.pdf
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    Citations

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    Cited by:

    1. Biing-Shiunn Yang & Chao-Cheng Mai, 2013. "The impact of uncertain environmental regulatory policy on optimal plant location and anti-pollution technology selection," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 50(3), pages 753-769, June.
    2. Karavidas Dionysios, 2020. "Market Access and Home Market Effect," Open Economics, De Gruyter, vol. 3(1), pages 42-49, January.
    3. Rikard FORSLID & Toshihiro OKUBO, 2017. "Early Agglomeration or Late Agglomeration? Two phases of development with spatial sorting," Discussion papers 17001, Research Institute of Economy, Trade and Industry (RIETI).
    4. Forslid, Rikard & Okubo, Toshihiro, 2023. "Trade, location, and multi-product firms," Regional Science and Urban Economics, Elsevier, vol. 100(C).
    5. Okubo, Toshihiro & Watabe, Yuta, 2023. "Networked FDI and third-country intra-firm trade," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 591-606.
    6. Karavidas Dionysios, 2020. "Market Access and Home Market Effect," Open Economics, De Gruyter, vol. 3(1), pages 42-49, January.
    7. Richard E. Baldwin & Toshihiro Okubo, 2014. "International Trade, Offshoring and Heterogeneous Firms," Review of International Economics, Wiley Blackwell, vol. 22(1), pages 59-72, February.
    8. Jyh-Fa Tsai, 2019. "Tax competition with spillover public goods in a median location model," Asia-Pacific Journal of Regional Science, Springer, vol. 3(3), pages 831-862, October.
    9. José M. Gaspar & Sofia B. S. D. Castro & João Correia-da-Silva, 2018. "Agglomeration patterns in a multi-regional economy without income effects," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 66(4), pages 863-899, December.
    10. Forslid, Rikard & Okubo, Toshihiro, 2012. "On the development strategy of countries of intermediate size—An analysis of heterogeneous firms in a multi-region framework," European Economic Review, Elsevier, vol. 56(4), pages 747-756.
    11. José M. Gaspar, 2018. "A prospective review on New Economic Geography," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 61(2), pages 237-272, September.
    12. Rikard Forslid & Toshihiro Okubo, 2015. "Which Firms Are Left In The Periphery? Spatial Sorting Of Heterogeneous Firms With Scale Economies In Transportation," Journal of Regional Science, Wiley Blackwell, vol. 55(1), pages 51-65, January.

    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • 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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