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Footloose capital, market access, and the geography of regional state aid

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  • Ottaviano, Gianmarco I. P.

Abstract

The global welfare implications of home market effects in trade models with imperfect competition are little understood. This paper proposes a simple model in which such implications can be easily analyzed. It shows an overall tendency of imperfectly competitive sectors to inefficiently cluster in locations that offer market access advantages. The more so the stronger the market power of firms as well as the intensity of increasing returns to scale and the lower the trade costs. As such features are likely to differ widely across sectors, those results provide theoretical ground to the promotion of regional policies that are also sectorspecific and not only region-specific as currently in the EU.

Suggested Citation

  • Ottaviano, Gianmarco I. P., 2001. "Footloose capital, market access, and the geography of regional state aid," HWWA Discussion Papers 132, Hamburg Institute of International Economics (HWWA).
  • Handle: RePEc:zbw:hwwadp:26387
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    References listed on IDEAS

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    1. Brander, James & Krugman, Paul, 1983. "A 'reciprocal dumping' model of international trade," Journal of International Economics, Elsevier, pages 313-321.
    2. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
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    4. Helpman, E., 1990. "Monopolistic Competition In Trade Theory," Princeton Studies in International Economics 16, International Economics Section, Departement of Economics Princeton University,.
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    8. Keith Head & Thierry Mayer, 2000. "Non-Europe: The magnitude and causes of market fragmentation in the EU," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 136(2), pages 284-314, June.
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    Cited by:

    1. Krieger-Boden, Christiane, 2002. "European integration and the case for compensatory regional policy," ERSA conference papers ersa02p240, European Regional Science Association.

    More about this item

    Keywords

    economic integration; specialization; home market effect; regional disparities; regional policy;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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