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|
|Contact details of provider:|| Web page: http://www2.econ.osaka-u.ac.jp/library/global/e_HP/e_g_shiryo.html|
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- Martin, Philippe & I.P. Ottaviano, Gianmarco, 1999.
"Growing locations: Industry location in a model of endogenous growth,"
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- Philippe Martin & Gianmarco Ottaviano, 2001. "Growth and Agglomeration," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00179826, HAL.
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- Kyoko Hirose & Kazuhiro Yamamoto, 2007. "Knowledge spillovers, location of industry, and endogenous growth," The Annals of Regional Science, Springer;Western Regional Science Association, 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.
- 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.
- 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. Full references (including those not matched with items on IDEAS)
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