Trade costs, wage difference, and endogenous growth
In this paper, we develop an endogenous growth model with two coun- tries in which the international trade of differentiated goods requires dif- ferent trade costs and equilibrium wages in the two countries. If the labor productivity in one country's agricultural sector is higher than that of the other country, the wages will also be higher. In this model, there is a case in which the small country has a higher share of manufacturing firms than the larger country, and the innovation sector locates in the small country, since the cost for production of the manufacturing sector and innovation sector is higher in the large country than in the small country. First, when trade costs are high, the share of manufacturing firms in a large country increases with a decline in trade costs. However, the share then decreases with a decline in trade costs when trade costs are low. Finally, all firms agglomerate in the small country with lower production costs. If trade costs are very high, the innovation sector will locate in the small country. If trade costs take an intermediate value, it will locate in the large country. If trade costs become very low, it will re-locate in the small country. The growth rate moves non-monotonously in a W-shaped curve when there is a reduction in trade costs. This happens because the growth rate is affected by the number of manufacturing firms and the location of the innovation sector.
|Date of creation:||May 2011|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.econ.osaka-u.ac.jp/|
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Philippe Martin & Gianmarco Ottaviano, 1996.
"Growth and Agglomeration,"
1996-14, CEPII research center.
- Minniti, Antonio & Parello, Carmelo Pierpaolo, 2011. "Trade integration and regional disparity in a model of scale-invariant growth," Regional Science and Urban Economics, Elsevier, vol. 41(1), pages 20-31, January.
- Martin, Philippe & I.P. Ottaviano, Gianmarco, 1999.
"Growing locations: Industry location in a model of endogenous growth,"
European Economic Review,
Elsevier, vol. 43(2), pages 281-302, February.
- Martin, Philippe & Ottaviano, Gianmarco, 1996. "Growing Locations: Industry Location in a Model of Endogenous Growth," CEPR Discussion Papers 1523, C.E.P.R. Discussion Papers.
- Kyoko Hirose & Kazuhiro Yamamoto, 2007.
"Knowledge spillovers, location of industry, and endogenous growth,"
The Annals of Regional Science,
Springer, vol. 41(1), pages 17-30, March.
- Kyoko Hirose & Kazuhiro Yamamoto, 2005. "Knowledge spillovers, location of industry, and endogenous growth," Discussion Papers in Economics and Business 05-15, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
- Gao, Ting, 2007. "Trade costs, international production shifting, and growth," European Economic Review, Elsevier, vol. 51(2), pages 317-335, February.
- Yamamoto, Kazuhiro, 2003. "Agglomeration and growth with innovation in the intermediate goods sector," Regional Science and Urban Economics, Elsevier, vol. 33(3), pages 335-360, May.
- Dixit, Avinash K & Stiglitz, Joseph E, 1975.
"Monopolistic Competition and Optimum Product Diversity,"
The Warwick Economics Research Paper Series (TWERPS)
64, University of Warwick, Department of Economics.
- Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
When requesting a correction, please mention this item's handle: RePEc:osk:wpaper:1116. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Atsuko SUZUKI)
If references are entirely missing, you can add them using this form.