Capital liberalization, industrial agglomeration and wage inequality

Yao Li ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper sets up a new economic geography model with diminishing marginal returns and examines the effect of capital liberalization on industrial agglomeration and wage inequality. The simulation results indicate that for the country with strict capital controls, capital liberalization can help reduce wage difference between countries in both nominal and real terms. It is also shown that when both comparative advantage and agglomeration are in effect, low trading costs does not necessarily cause the catastrophic agglomeration in the country with the larger market as most other NEG models predict.

Keywords: New Economic Geography; Capital Liberalization; Trade Costs (search for similar items in EconPapers)
JEL-codes: F12 O24 R12 (search for similar items in EconPapers)
Date: 2007-12, Revised 2008-05
New Economics Papers: this item is included in nep-geo and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:11355

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