Heterogeneous firms, trade liberalization and agglomeration

Hisamitsu Saito, Munisamy Gopinath and JunJie Wu

Canadian Journal of Economics, 2011, vol. 44, issue 2, 541-560

Abstract: In this study, we develop an economic model to examine agglomeration of heterogeneous firms following trade liberalization. In a closed economy, we show that high-productivity firms are more likely to agglomerate because they benefit more from agglomeration than their low-productivity counterparts. However, trade liberalization, especially with a high-productivity partner, favours partial agglomeration; that is, low-productivity firms relocate away from the region where high-productivity firms agglomerate. Consequently, the welfare gap between the domestic regions of an economy narrows following trade liberalization. The latter result suggests that trade liberalization promotes regional economic development.

JEL-codes: F15 R12 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (18)

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