Economic integration and agglomeration in a customs union in the presence of an outside region
New Economic Geography (NEG) models do not typically account for the presence of regions other than the ones involved in the integration process. We explore such a possibility in a Footloose Entrepreneur (FE) model aiming at studying the stability properties of long-run industrial location equilibria. We consider a world economy composed by a customs union of two regions (regions 1 and 2) and an “outside region” which can be regarded as the rest of the world (region 3). The effects of economic integration on industrial agglomeration within the customs union are studied under the assumption of a constant distance between the customs union itself and the third region. The results show that higher economic integration does not always implies the standard result of full agglomeration of FE models. This incomplete agglomeration outcome is due to the fact that the periphery region keeps a share of industrial activities in order to satisfy a share of “external demand”. That is, the deindustrialization process brought about by economic integration in the periphery of the union is mitigated by the demand of consumers living in the rest of the world. In general, the market size of the third region affects the number of the long-run equilibria, as well as their stability properties. In addition to the standard outcomes of FE models, we describe the existence of two asymmetric equilibria characterised by unequal distribution of firms between regions 1 and 2, with no full agglomeration though. Interestingly, these equilibria are stable and therefore can be regarded as a likely long-run equilibrium state of the economy.
|Date of creation:||Oct 2012|
|Contact details of provider:|| Postal: Welthandelsplatz 1, 1020 Vienna, Austria|
Web page: http://www.wu.ac.at/economics/en
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Krugman, Paul & Elizondo, Raul Livas, 1996.
"Trade policy and the Third World metropolis,"
Journal of Development Economics,
Elsevier, vol. 49(1), pages 137-150, April.
- repec:hal:journl:halshs-00096285 is not listed on IDEAS
- Elisenda Paluzie, 2001. "articles: Trade policy and regional inequalities," Papers in Regional Science, Springer;Regional Science Association International, vol. 80(1), pages 67-85.
- Olga Alonso-Villar, 2001.
"Large Metropolises in the Third World: An Explanation,"
Urban Studies Journal Limited, vol. 38(8), pages 1359-1371, July.
- Olga Alonso-Villar, 2000. "Large metropolises in the Third World: an explanation," Working Papers 0004, Universidade de Vigo, Departamento de Economía Aplicada.
- 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.
- Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
- repec:hal:journl:halshs-00179815 is not listed on IDEAS
- Olga Alonso-Villar, 2000. "Spatial Distribution of Production and Education," Documentos de trabajo - Analise Economica 0008, IDEGA - Instituto Universitario de Estudios e Desenvolvemento de Galicia.
- Marius Brülhart & Matthieu Crozet & Pamina Koenig, 2004.
"Enlargement and the EU Periphery: The Impact of Changing Market Potential,"
The World Economy,
Wiley Blackwell, vol. 27(6), pages 853-875, 06.
- Marius BRÜLHART & Matthieu CROZET & Pamina KOENIG, 2004. "Enlargement and the EU Periphery: The Impact of Changing Market Potential," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 04.02, Université de Lausanne, Faculté des HEC, DEEP.
- Crozet, Matthieu & Brülhart, Marius & Koenig, Pamina, 2004. "Enlargement and the EU Periphery : The Impact of Changing Market Potential," HWWA Discussion Papers 270, Hamburg Institute of International Economics (HWWA).
- Marius Brülhart & Matthieu Crozet & Pamina Koenig, 2004. "Enlargement and the EU Periphery: The Impact of Changing Market Potential," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00096285, HAL.
- Monfort, Philippe & Nicolini, Rosella, 1998.
"Regional Convergence and International Integration,"
Discussion Papers (IRES - Institut de Recherches Economiques et Sociales)
1998022, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
- Monfort, Philippe & Nicolini, Rosella, 2000. "Regional Convergence and International Integration," Journal of Urban Economics, Elsevier, vol. 48(2), pages 286-306, September.
- Villar, Olga Alonso, 1999. "Spatial distribution of production and international trade: a note," Regional Science and Urban Economics, Elsevier, vol. 29(3), pages 371-380, May.
- Richard Baldwin & Rikard Forslid & Philippe Martin & Gianmarco Ottaviano & Frederic Robert-Nicoud, 2005.
"Economic Geography and Public Policy,"
Princeton University Press,
edition 1, number 7524.
- Richard Baldwin & Rikard Forslid & Philippe Martin & Gianmarco Ottaviano & Frederic Robert Nicoud, 2003. "Economic Geography and Public Policy," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00179815, HAL.
When requesting a correction, please mention this item's handle: RePEc:wiw:wiwwuw:wuwp146. 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: (Department of Economics)
If references are entirely missing, you can add them using this form.