Trade and Location with Land as a Productive Factor

Michael Pfluger and Takatoshi Tabuchi
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Michael Pfluger: Faculty of Economics, University of Passau, DIW Berlin and IZA

No CIRJE-F-591, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: This paper is motivated by the fact that, contrary to its importance in practice, the role of land for production has received no attention in the new trade theory and the new economic geography. We set up a simple monopolistic competition model and we show that, due to the factor proportions effect which emerges when land is used as a productive factor besides labor, a number of tenets of the new trade and geography literature no longer hold. We also show that in order to explain the stylised facts, notably that wages are higher in larger locations, land-use for production and housing has to be taken into account. Our analysis furthermore implies that market-size based agglomeration forces are too weak to overcome the very strong congestion force associated with competition for land, unless the consumers desire of variety (as expressed by a low elasticity of substitution) is very strong. This suggests that further agglomeration forces have to be invoked to explain the agglomeration of economic activity observed in the real world.

Pages: 37pages
Date: 2008-09
New Economics Papers: this item is included in nep-geo, nep-int and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Trade and Location with Land as a Productive Factor (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:tky:fseres:2008cf591

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