IDEAS home Printed from https://ideas.repec.org/p/tuf/tuftec/0808.html
   My bibliography  Save this paper

A DMP Model of Intercity Trade

Author

Listed:
  • Yannis M. Ioannides

Abstract

The paper presents a model of an economy whose urban structure consists of cities of different types. All cities of different types. All cities produce a non-tradeable final good using both types of tradeable intermediate varieties. Each city has an internal spatial structure: individuals commute to the CBD in order to work, when employed, and to seek jobs, when unemployed. Hiring by each intermediate producing firm is subject to frictions, which are modeled in the Diamond-Mortensen-Pissarides fashion. Job matching requires either travel to the CBD for face to face contacts or, alternatively, referrals from social contacts.City type is conferred by specialization in producing one of the two types of intermediate varieties, diversified cities, where both types are produced, and there is intercity trade in intermediate varieties. The paper examines the properties of equilibrium with intercity trade and its dependence on such parameters as those pertaining to productivity, the matching process, the rate of job destruction and their consequences for unemployment, output and welfare across the economy along a steady state. The model's use of international trade tools confers a central role to labor market tightness, akin to factor intensity. A natural dependence of unemployment on city size is generated. The paper provides a framework for studying spatial mismatch. Equilibrium outcomes generically diverge from the planner's optimum: socially optimal unemployment trades off the probability of employment to search socts of firms independently for each skill type and independently of city size, and city sizes are independent of labor market tightness considerations but reflect both market size effects and the skill composition of the economy.

Suggested Citation

  • Yannis M. Ioannides, 2015. "A DMP Model of Intercity Trade," Discussion Papers Series, Department of Economics, Tufts University 0808, Department of Economics, Tufts University.
  • Handle: RePEc:tuf:tuftec:0808
    as

    Download full text from publisher

    File URL: https://sites.tufts.edu/yioannides/files/2012/09/Ioannides-Urban-Macro-January-31-2015.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877.
    2. repec:dgr:umamer:2002022 is not listed on IDEAS
    3. Zenou,Yves, 2009. "Urban Labor Economics," Cambridge Books, Cambridge University Press, number 9780521698221.
    4. Diamond, Peter A. & Şahin, Ayşegül, 2015. "Shifts in the Beveridge curve," Research in Economics, Elsevier, vol. 69(1), pages 18-25.
    5. Thomas Ziesemer, 2003. "Information and Communication Technology as Technical Change in Matching and Production," Journal of Economics, Springer, vol. 79(3), pages 263-287, July.
    6. Diamond, Charles A & Simon, Curtis J, 1990. "Industrial Specialization and the Returns to Labor," Journal of Labor Economics, University of Chicago Press, vol. 8(2), pages 175-201, April.
    7. Aart Kraay & Jaume Ventura, 2007. "Comparative Advantage and the Cross-section of Business Cycles," Journal of the European Economic Association, MIT Press, vol. 5(6), pages 1300-1333, December.
    8. Wasmer, Etienne & Zenou, Yves, 2006. "Equilibrium search unemployment with explicit spatial frictions," Labour Economics, Elsevier, vol. 13(2), pages 143-165, April.
    9. Bleakley, Hoyt & Lin, Jeffrey, 2012. "Thick-market effects and churning in the labor market: Evidence from US cities," Journal of Urban Economics, Elsevier, vol. 72(2), pages 87-103.
    10. Peter Diamond, 2011. "Unemployment, Vacancies, Wages," American Economic Review, American Economic Association, vol. 101(4), pages 1045-1072, June.
    11. Arnaud Costinot, 2009. "Jobs, Jobs, Jobs: A "New" Perspective on Protectionism," Journal of the European Economic Association, MIT Press, vol. 7(5), pages 1011-1041, September.
    12. Gan, Li & Zhang, Qinghua, 2006. "The thick market effect on local unemployment rate fluctuations," Journal of Econometrics, Elsevier, vol. 133(1), pages 127-152, July.
    13. Alejandro Cuñat & Marc J. Melitz, 2012. "Volatility, Labor Market Flexibility, And The Pattern Of Comparative Advantage," Journal of the European Economic Association, European Economic Association, vol. 10(2), pages 225-254, April.
    14. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627, Elsevier.
    15. Tang, Heiwai, 2012. "Labor market institutions, firm-specific skills, and trade patterns," Journal of International Economics, Elsevier, vol. 87(2), pages 337-351.
    16. Christopher A. Pissarides & Barbara Petrongolo, 2001. "Looking into the Black Box: A Survey of the Matching Function," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 390-431, June.
    17. Henderson, J V, 1974. "The Sizes and Types of Cities," American Economic Review, American Economic Association, vol. 64(4), pages 640-656, September.
    18. Helsley, Robert W. & Strange, William C., 1990. "Matching and agglomeration economies in a system of cities," Regional Science and Urban Economics, Elsevier, vol. 20(2), pages 189-212, September.
    19. Owyang, Michael T. & Rapach, David E. & Wall, Howard J., 2009. "States and the business cycle," Journal of Urban Economics, Elsevier, vol. 65(2), pages 181-194, March.
    20. Elhanan Helpman & Oleg Itskhoki, 2010. "Labour Market Rigidities, Trade and Unemployment," Review of Economic Studies, Oxford University Press, vol. 77(3), pages 1100-1137.
    21. Andrea Galeotti & Luca Paolo Merlino, 2014. "Endogenous Job Contact Networks," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55, pages 1201-1226, November.
    22. Dale T. Mortensen, 2011. "Markets with Search Friction and the DMP Model," American Economic Review, American Economic Association, vol. 101(4), pages 1073-1091, June.
    23. Davidson, Carl & Martin, Lawrence & Matusz, Steven, 1999. "Trade and search generated unemployment," Journal of International Economics, Elsevier, vol. 48(2), pages 271-299, August.
    24. Dutt, Pushan & Mitra, Devashish & Ranjan, Priya, 2009. "International trade and unemployment: Theory and cross-national evidence," Journal of International Economics, Elsevier, vol. 78(1), pages 32-44, June.
    25. Behrens, Kristian & Robert-Nicoud, Frédéric, 2015. "Agglomeration Theory with Heterogeneous Agents," Handbook of Regional and Urban Economics, Elsevier.
    26. Ay?egül ?ahin & Joseph Song & Giorgio Topa & Giovanni L. Violante, 2014. "Mismatch Unemployment," American Economic Review, American Economic Association, vol. 104(11), pages 3529-3564, November.
    27. Edward L. Glaeser & Joseph Gyourko, 2005. "Urban Decline and Durable Housing," Journal of Political Economy, University of Chicago Press, vol. 113(2), pages 345-375, April.
    28. Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1977. "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods," American Economic Review, American Economic Association, vol. 67(5), pages 823-839, December.
    29. Curtis J. Simon, 1988. "Frictional Unemployment and the Role of Industrial Diversity," The Quarterly Journal of Economics, Oxford University Press, vol. 103(4), pages 715-728.
    30. 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.
    31. Duranton, Gilles & Puga, Diego, 2005. "From sectoral to functional urban specialisation," Journal of Urban Economics, Elsevier, vol. 57(2), pages 343-370, March.
    32. Patrick Kline & Enrico Moretti, 2013. "Place Based Policies with Unemployment," American Economic Review, American Economic Association, vol. 103(3), pages 238-243, May.
    33. Owyang, Michael T. & Piger, Jeremy M. & Wall, Howard J. & Wheeler, Christopher H., 2008. "The economic performance of cities: A Markov-switching approach," Journal of Urban Economics, Elsevier, vol. 64(3), pages 538-550, November.
    34. Zenou, Yves, 2009. "Urban search models under high-relocation costs. Theory and application to spatial mismatch," Labour Economics, Elsevier, vol. 16(5), pages 534-546, October.
    35. Andersson, Fredrik & Burgess, Simon & Lane, Julia I., 2007. "Cities, matching and the productivity gains of agglomeration," Journal of Urban Economics, Elsevier, vol. 61(1), pages 112-128, January.
    36. Jordan Rappaport, 2012. "Why does unemployment differ persistently across metro areas?," Economic Review, Federal Reserve Bank of Kansas City, issue Q II.
    37. Christopher A. Pissarides, 2011. "Equilibrium in the Labor Market with Search Frictions," American Economic Review, American Economic Association, vol. 101(4), pages 1092-1105, June.
    38. Anas, Alex & Xiong, Kai, 2003. "Intercity trade and the industrial diversification of cities," Journal of Urban Economics, Elsevier, vol. 54(2), pages 258-276, September.
    39. Francis Neville & Owyang Michael T. & Sekhposyan Tatevik, 2012. "The Local Effects of Monetary Policy," The B.E. Journal of Macroeconomics, De Gruyter, vol. 12(2), pages 1-38, March.
    40. Galenianos, Manolis, 2014. "Hiring through referrals," Journal of Economic Theory, Elsevier, vol. 152(C), pages 304-323.
    41. repec:dgr:umamer:2001024 is not listed on IDEAS
    42. Margaret Stevens, 2007. "New Microfoundations For The Aggregate Matching Function," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(3), pages 847-868, August.
    43. repec:eee:labchp:v:3:y:1999:i:pb:p:2567-2627 is not listed on IDEAS
    44. Simon, Curtis J., 2004. "Industrial reallocation across US cities, 1977-1997," Journal of Urban Economics, Elsevier, vol. 56(1), pages 119-143, July.
    45. Pissarides, Christopher A, 1985. "Short-run Equilibrium Dynamics of Unemployment Vacancies, and Real Wages," American Economic Review, American Economic Association, vol. 75(4), pages 676-690, September.
    46. Oliver Jean Blanchard & Peter Diamond, 1989. "The Beveridge Curve," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1), pages 1-76.
    47. Lars A. Stole & Jeffrey Zwiebel, 1996. "Intra-firm Bargaining under Non-binding Contracts," Review of Economic Studies, Oxford University Press, vol. 63(3), pages 375-410.
    48. Wasmer, Etienne & Zenou, Yves, 2002. "Does City Structure Affect Job Search and Welfare?," Journal of Urban Economics, Elsevier, vol. 51(3), pages 515-541, May.
    49. Joel Bergsman & Peter Greenston & Robert Healy, 1972. "The Agglomeration Process in Urban Growth," Urban Studies, Urban Studies Journal Limited, vol. 9(3), pages 263-288, October.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tuf:tuftec:0808. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marcus Weir). General contact details of provider: http://ase.tufts.edu/economics .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.