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Core-Periphery vs Home Market Effect: Trade in the Traditional Sector and the Demand Advantage

Sergey Kichko

No WP BRP 159/EC/2017, HSE Working papers from National Research University Higher School of Economics

Abstract: We study the role of (i) initial differences in shares of immobile workers between countries which stand for the agglomeration forces, and (ii) positive trade costs in the traditional sector which are related to the dispersion forces, in shaping the spatial pattern of the developed and transition countries. We show that on the trade liberalization path in skill-intensive industries, keeping high trade barriers in less skill-intensive sectors is enough to protect a transition country from de-industrialization. If trade liberalization in a skill-intensive sector is accompanied by decreasing trade barriers in the traditional sector, the developed country has a higher probability to become a Core. When partial agglomeration is stable, it is characterized by the Home Market Eect (HME).

Keywords: Core-Periphery model; partial agglomeration; Home Market Eect; mo- nopolistic competition (search for similar items in EconPapers)
JEL-codes: R12 R13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-geo
Date: 2017
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Published in WP BRP Series: Economics / EC, March 2017, pages 1-30

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