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Trade, Urban Systems, and Labor Markets

Hesham Abdel-Rahman ()

No 2005-13, Working Papers from University of New Orleans, Department of Economics and Finance

Abstract: 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
Date: 2005-11
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Handle: RePEc:uno:wpaper:2005-13