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

  • 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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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
Date of revision:
Handle: RePEc:por:fepwps:352
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  1. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
  2. Puga, Diego, 1997. "The Rise and Fall of Regional Inequalities," CEPR Discussion Papers 1575, C.E.P.R. Discussion Papers.
  3. Davis, Donald R. & Weinstein, David E., 2003. "Market access, economic geography and comparative advantage: an empirical test," Journal of International Economics, Elsevier, vol. 59(1), pages 1-23, January.
  4. Behrens, Kristian, 2004. "Agglomeration without trade: how non-traded goods shape the space-economy," Journal of Urban Economics, Elsevier, vol. 55(1), pages 68-92, January.
  5. Fabio Cerina & Francesco Mureddu, 2010. "Is Agglomeration really Good for Growth? Global Efficiency, Interregional Equity and Uneven Growth," DEGIT Conference Papers c015_022, DEGIT, Dynamics, Economic Growth, and International Trade.
  6. Donald R. Davis, 1997. "The Home Market, Trade, and Industrial Structure," NBER Working Papers 6076, National Bureau of Economic Research, Inc.
  7. Rikard Forslid & Gianmarco I.P. Ottaviano, 2003. "An analytically solvable core-periphery model," Journal of Economic Geography, Oxford University Press, vol. 3(3), pages 229-240, July.
  8. TABUCHI, Takatoshi & THISSE, Jacques-François, 2003. "Regional specialization, urban hierarchy, and commuting costs," CORE Discussion Papers 2003060, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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