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On the impact of competition on trade and firm location

Author

Listed:
  • Toshihiro Okubo

    () (Keio University, Japan)

  • Pierre Picard

    () (CREA, Université du Luxembourg)

  • Jacques-François Thisse

    () (Université catholique de Louvain)

Abstract

We study how the level of trade costs and the intensity of competition interact to explain the nature and intensity of trade within a given industry and the location of firms across countries. As trade costs decrease from very high to very low values, the global economy moves from autarky to two-way trade, through one-way trade from the larger to the smaller region. By exploring the intensive and extensive margins of exports, we investigate how the intensity of trade reacts to the degree of competitiveness. Furthermore, when firms are free to change location, they flow from the small to the large country, and the larger country is always a net exported on the manufactured good. Firms located in the big country have a bigger size than those located in the small one. Under one-way trade, the relocation of firms changes their attitude toward export.

Suggested Citation

  • Toshihiro Okubo & Pierre Picard & Jacques-François Thisse, 2014. "On the impact of competition on trade and firm location," CREA Discussion Paper Series 14-05, Center for Research in Economic Analysis, University of Luxembourg.
  • Handle: RePEc:luc:wpaper:14-05
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    References listed on IDEAS

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    1. Picard, Pierre M. & Okubo, Toshihiro, 2012. "Firms' locations under demand heterogeneity," Regional Science and Urban Economics, Elsevier, vol. 42(6), pages 961-974.
    2. Richard Baldwin & James Harrigan, 2011. "Zeros, Quality, and Space: Trade Theory and Trade Evidence," American Economic Journal: Microeconomics, American Economic Association, vol. 3(2), pages 60-88, May.
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    4. Chen, Natalie & Imbs, Jean & Scott, Andrew, 2009. "The dynamics of trade and competition," Journal of International Economics, Elsevier, vol. 77(1), pages 50-62, February.
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    6. Alfonso Irarrazabal & Andreas Moxnes & Luca David Opromolla, 2015. "The Tip of the Iceberg: A Quantitative Framework for Estimating Trade Costs," The Review of Economics and Statistics, MIT Press, vol. 97(4), pages 777-792, October.
    7. Okubo, Toshihiro & Picard, Pierre M. & Thisse, Jacques-François, 2010. "The spatial selection of heterogeneous firms," Journal of International Economics, Elsevier, vol. 82(2), pages 230-237, November.
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    Cited by:

    1. repec:eee:jjieco:v:45:y:2017:i:c:p:1-12 is not listed on IDEAS
    2. Hayakawa, Kazunobu & Ito, Tadashi & Okubo, Toshihiro, 2017. "On the stability of intra-industry trade," Journal of the Japanese and International Economies, Elsevier, vol. 45(C), pages 1-12.

    More about this item

    Keywords

    trade; competition; firm location; capital mobility;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • 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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