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Capital liberalization, industrial agglomeration and wage inequality

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  • Li, Yao

Abstract

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.

Suggested Citation

  • Li, Yao, 2007. "Capital liberalization, industrial agglomeration and wage inequality," MPRA Paper 11355, University Library of Munich, Germany, revised May 2008.
    • Handle: RePEc:pra:mprapa:11355
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    New Economic Geography; Capital Liberalization; Trade Costs;
    All these keywords.

    JEL classification:

    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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