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Capital liberalization, industrial agglomeration and wage inequality

  • Li, Yao
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This paper sets up a new economic geography model with diminishing marginal returns and examines the effect of capital liberalization on industrial agglomeration and wage inequality. The simulation results indicate that for the country with strict capital controls, capital liberalization can help reduce wage difference between countries in both nominal and real terms. It is also shown that when both comparative advantage and agglomeration are in effect, low trading costs does not necessarily cause the catastrophic agglomeration in the country with the larger market as most other NEG models predict.

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File URL: http://mpra.ub.uni-muenchen.de/11355/1/MPRA_paper_11355.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 11355.

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Date of creation: Dec 2007
Date of revision: May 2008
Handle: RePEc:pra:mprapa:11355
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Web page: http://mpra.ub.uni-muenchen.de

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  1. Baldwin, Richard, 1998. "Agglomeration and Endogenous Capital," CEPR Discussion Papers 1845, C.E.P.R. Discussion Papers.
  2. Forslid, Rikard, 1999. "Agglomeration with Human and Physical Capital: an Analytically Solvable Case," CEPR Discussion Papers 2102, C.E.P.R. Discussion Papers.
  3. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476, June.
  4. 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.
  5. Davis, Donald R, 1998. "The Home Market, Trade, and Industrial Structure," American Economic Review, American Economic Association, vol. 88(5), pages 1264-76, December.
  6. Amiti, Mary, 2001. "Location of Vertically Linked Industries: Agglomeration versus Comparative Advantage," CEPR Discussion Papers 2800, C.E.P.R. Discussion Papers.
  7. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  8. Wolfgang HÄRDLE & J. MARRON & L. YANG, 1996. "Discussion," SFB 373 Discussion Papers 1996,65, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  9. Ottaviano, Gianmarco, 1996. "Monopolistic Competition, Trade, and Endogenous Spatial Fluctuations," CEPR Discussion Papers 1327, C.E.P.R. Discussion Papers.
  10. J. V. Henderson & J. F. Thisse (ed.), 2004. "Handbook of Regional and Urban Economics," Handbook of Regional and Urban Economics, Elsevier, edition 1, volume 4, number 4.
  11. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
  12. Martin, Philippe & Rogers, Carol Ann, 1994. "Industrial Location and Public Infrastructure," CEPR Discussion Papers 909, C.E.P.R. Discussion Papers.
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