Localization Economies, Vertical Organization and Trade

Gordon Hanson

No 4744, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper develops a model of regional production networks based on localization economies. I consider an industry with two activities: one with location-specific external economies, the other with constant returns. Under autarky, localization economies imply the formation of an industry center. Agglomeration drives up wages in the center, causing the constant returns activity to disperse to outlying regions. Trade recreates the regional production network on a global scale. I apply the model to data from the Mexican apparel industry. Estimation results on Mexico's pre- and post-trade regional apparel wage structure are consistent with localization economies. Implications for the North American Free Trade Agreement (NAFTA) are discussed.

JEL-codes: E14 O18 (search for similar items in EconPapers)
Date: 1994-05
Note: ITI
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Published as American Economic Review, vol.86, no.5, December 1996, pp.1266-1278.

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