Trade and Location with Land as a Productive Factor

Michael P. Pflüger () and Takatoshi Tabuchi
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Michael P. Pflüger: University of Würzburg

No 3716, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper is motivated by the fact that, contrary to its importance in practice, the role of land for production has received no attention in the new trade theory and the new economic geography. We set up a simple monopolistic competition model and we show that, due to the factor proportions effect which emerges when land is used as a productive factor besides labor, a number of tenets of the new trade and geography literature no longer hold. We also show that in order to explain the stylized facts, notably that wages are higher in larger locations, land-use for production and housing has to be taken into account. Our analysis furthermore implies that market-size based agglomeration forces are too weak to overcome the very strong congestion force associated with competition for land, unless the consumers' desire of variety (as expressed by a low elasticity of substitution) is very strong. This suggests that further agglomeration forces have to be invoked to explain the agglomeration of economic activity observed in the real world.

Keywords: trade and location; land for production; agglomeration; relative wage; home market effect (search for similar items in EconPapers)
JEL-codes: F12 F22 R12 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2008-09
New Economics Papers: this item is included in nep-geo, nep-int and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published - published in revised form as 'The size of regions with land use for production ' in: Regional Science and Urban Economics, 2010, 40 (6), 481 - 489

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