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A third sector in the core-periphery model: non-tradable goods

Listed author(s):
  • Vasco Leite

    ()

    (Faculdade de Economia, Universidade do Porto)

  • Sofia B.S.D. Castro

    ()

    (CMUP and Faculdade de Economia, Universidade do Porto)

  • João Correia-da-Silva

    ()

    (CEF.UP and Faculdade de Economia, Universidade do Porto)

We extend an analytically solvable core-periphery model by introducing a monopolistically competitive sector of non-tradable goods. We study how trade costs affect the spatial distribution of economic activity. Trade costs have no effect when the elasticity of substitution among non-tradable goods is low. In this case, concentration of all production (of tradable and non-tradable goods) is the unique equilibrium. When the elasticity of substitution among non-tradable goods is high, we find two equilibrium configurations: symmetric dispersion of the production of tradable and non-tradable goods, if trade costs are high; and concentration of production of tradable goods with asymmetric dispersion of production of non-tradable goods, if trade costs are low.

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File URL: http://www.fep.up.pt/investigacao/workingpapers/09.12.17_wp352.pdf
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Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 352.

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Length: 37 pages
Date of creation: Dec 2009
Handle: RePEc:por:fepwps:352
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