The Spatial Selection of Heterogeneous Firms

Toshihiro Okubo (), Pierre M. Picard () and Jacques Thisse ()

No 6978, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The aim of this paper is to study the spatial selection of firms once it is recognized that heterogeneous firms typically choose different locations in respond to market integration of regions having different sizes. Specifically, we show that decreasing trade costs leads to the gradual agglomeration of efficient firms in the large region because these firms are able to survive in a more competitive environment. In contrast, high-cost firms seek protection against competition from the efficient firms by establishing themselves in the small region. However, when the spatial separation of markets ceases to be a sufficient protection against competition from the low-cost firms, high-cost firms also choose to set up in the larger market where they have access to a bigger pool of consumers. This leads to the following prediction: the relationship between economic integration and interregional productivity differences first increases and then decreases with market integration.

Keywords: firm heterogeneity; spatial selection; trade liberalization (search for similar items in EconPapers)
JEL-codes: F12 H22 H87 R12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-geo, nep-int, nep-mic and nep-ure
Date: 2008-09
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Related works:
Working Paper: The spatial selection of heterogeneous firms (2008)
Working Paper: The spatial selection of heterogeneous firms (2008)
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