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On the Development Strategy of Countries of Intermediate size - An Analysis of Heterogenous Fims in a Multiregion Framework

Rikard Forslid () and Toshihiro Okubo ()

No 2010:28, Research Papers in Economics from Stockholm University, Department of Economics

Abstract: This paper compares two policies: trade cost reduction and firm relocation cost reduction using a three-country version of a heterogeneous-firms economic geography model, where the three countries have different market (population) size. 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, 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)
New Economics Papers: this item is included in nep-int
Date: 2010-12-20
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Related works:
Journal Article: On the development strategy of countries of intermediate size—An analysis of heterogeneous firms in a multi-region framework (2012) Downloads
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 firms in a multiregion framework (2010) Downloads
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