Trade, Urban Systems, and Labor Markets
Hesham Abdel-Rahman ()
No 2005-13, Working Papers from University of New Orleans, Department of Economics and Finance
This paper investigates the impacts of free trade on the structure of urban systems, skill distribution, and income disparities. The paper proposes a model that integrates international trade theory and the theory of urban system. This is done in a two sector, spatial general equilibrium model of a North-South trade. Each country is populated with a continuum of unskilled workers with heterogeneous potential ability. Through differential training costs, workers with different potential ability can achieve the same productivity. Workers can acquire a skill by investing in training. Thus, skill distribution in both countries is determined endogenously in the model through self-selection. The economy produces a final good with the use of a high-tech intermediate input and unskilled workers. Horizontally differentiated skilled workers produce the high-tech intermediate input. Cities are formed in this model as a result of investment in setup cost, i.e., public infrastructures. I characterize two different types of spatial equilibria: a closed-economy equilibrium, in which each country consists of a system of cities without trade, and a free-trade equilibrium, in which we allow for trade between cities and countries.
Keywords: Potential ability; Training; Cities (search for similar items in EconPapers)
JEL-codes: R13 R51 F16 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-geo, nep-int and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:uno:wpaper:2005-13
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