Trade and Location with Horizontal and Vertical Multi-Region Firms

Karolina Ekholm () and Rikard Forslid

No 504, Working Paper Series from Research Institute of Industrial Economics

Abstract: This paper analyses the effect on agglomeration tendencies of allowing firms to become multi-region firms in a standard model of trade and location. More specifically, we introduce horizontal and vertical multi-region firms into the core-periphery (CP) model developed by Krugman (1991). The introduction of horizontal multi-region firms dampens the strong agglomeration effects found in the CP model by making the range of trade costs for which the core-periphery equilibrium occurs smaller. The introduction of vertical multi-region firms that can separate the location of headquarter activities from the location of production has two counteracting effects. First, headquarters have a strong tendency to agglomerate, and, in this sence, agglomeration tendencies are strengthened. Second, actual production tends to be more spread out, and, in this sense, they are weakened.

Keywords: Trade; Location; Agglomeration; Multinational firms (search for similar items in EconPapers)
JEL-codes: F12 F15 R12 (search for similar items in EconPapers)
Pages: 35 pages
Date: 1998-10-01
New Economics Papers: this item is included in nep-tid
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Citations:

Forthcoming in Scandinavian Journal of Economics.

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Related works:
Journal Article: Trade and Location with Horizontal and Vertical Multi‐region Firms (2001)
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