Internal Geography, International Trade, and Regional Outcomes

Pablo Fajgelbaum and A. Kerem Coşar
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Pablo Fajgelbaum: UCLA

No 63, 2013 Meeting Papers from Society for Economic Dynamics

Abstract: When trade is costly within countries, international trade leads to concentration of economic activity in locations with good access to foreign markets. Costly trade within countries also makes it hard for remote locations to gain from international trade. We investigate the role of these forces in shaping industry location, employment concentration and the gains from international trade. We develop a model that features comparative advantages between countries, coupled with differences in proximity to international markets across locations within a country. International trade creates a partition between a commercially integrated coastal region with high population density and an interior region where immobile factors are poorer. Reductions in domestic or international trade costs generate migration to the coastal region and net welfare losses for fixed factors in the interior region. We present motivating evidence from the U.S. which shows that export-oriented industries are more likely to locate closer to international ports. Then, we use the model to measure the importance of international trade in concentrating economic activity, and of domestic trade costs in hampering the gains from international trade.

Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed013:63

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