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Trade Policy and the Third World Metropolis

Raul Livas Elizondo and Paul Krugman ()

No 4238, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Many of the world's largest cities are now in developing countries. We develop a simple theoretical model, inspired by the case of Mexico, that explains the existence of such giant cities as a consequence of the strong forward and backward linkages that arise when manufacturing tries to serve a small domestic market. The model implies that these linkages are much weaker when the economy is open to international trade -- in other words, the giant Third World metropolis is an unintended by-product of import-substitution policies, and will tend to shrink as developing countries liberalize.

Date: 1992-12
Note: ITI IFM
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Published as Journal of Development Economics, Vol. 49, no. 1 (April 1996): 137-150.

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