Trade Liberalisation and Agglomeration with Firm Heterogeneity - Forward and Backward Linkages

Toshihiro Okubo

No 17-2006, IHEID Working Papers from Economics Section, The Graduate Institute of International Studies

Abstract: This paper studies the impact of trade costs reduction on geographical concentration in the presence of firm heterogeneity and overhead type of export fixed costs. Firm heterogeneity with the export fixed costs hampers full agglomeration through weakening the forward and backward linkages and fortifying the market crowding effect. Rather than catastrophic agglomeration that the standard new economic geography models have long suggested, trade liberalisation causes gradual agglomeration. Also, trade liberalisation never produces a perfect convergence in welfare for the periphery, which loses, and the core, which gains. Even free trade never equalises the welfare between core and periphery, i.e. trade liberalisation does not eliminate inequality among nations.

Keywords: heterogeneous firms; economic geography; spatial sorting effect; non-full agglomeration; non-catastrophic agglomeration; trade liberalisation. (search for similar items in EconPapers)
JEL-codes: H32 P16 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2006-04
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Related works:
Journal Article: Trade liberalisation and agglomeration with firm heterogeneity: Forward and backward linkages (2009)
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