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On the development strategy of countries of intermediate size—An analysis of heterogeneous firms in a multi-region framework

Rikard Forslid () and Toshihiro Okubo ()

European Economic Review, 2012, vol. 56, issue 4, 747-756

Abstract: This paper compares two policies: trade cost reduction and firm relocation cost reduction using a three-country version of a heterogeneous-firms geography and trade model, where the three countries have different market (population) sizes. We show how the effects of the two policies differ, in particular for the country of intermediate size. Unless the intermediate country is very small, in a relative sense, it will gain industry when relocation costs are reduced, but lose industry when trade costs are reduced. The smallest country loses industry in both cases, but only experiences lower welfare in the case of lower relocation costs. Thus, the ranking of the policies from the point of view of the two small and intermediate countries tends to be the opposite.

Keywords: Agglomeration; Firm heterogeneity; Multi-country model; Trade liberalisation; Relocation costs (search for similar items in EconPapers)
JEL-codes: F12 F15 F21 R12 (search for similar items in EconPapers)
Date: 2012
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Related works:
Working Paper: On the development strategy of countries of intermediate size - An analysis of heterogenous firms in a multiregion framework (2011) Downloads
Working Paper: On the development strategy of countries of intermediate size - An analysis of heterogeneous firms in a multi-region framework (2011) Downloads
Working Paper: On the Development Strategy of Countries of Intermediate size - An Analysis of Heterogenous Fims in a Multiregion Framework (2010) Downloads
Working Paper: On the development strategy of countries of intermediate size -An analysis of heterogenous firms in a multiregion framework (2010) Downloads
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