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On the development strategy of countries of intermediate size an analysis of heterogeneous firms in a multi region framework
Stockholm University, Faculty of Social Sciences, Department of Economics.
2012 (English)In: European Economic Review, ISSN 0014-2921, E-ISSN 1873-572X, Vol. 56, no 4, 747-756 p.Article in journal (Refereed) Published
Abstract [en]

This paper compares two policies: trade cost reduction and firm relocation cost reduction using a three-country version of a heterogeneous-firms geography and trade model, where the three countries have different market (population) sizes. We show how the effects of the two policies differ, in particular for the country of intermediate size. Unless the intermediate country is very small, in a relative sense, it will gain industry when relocation costs are reduced, but lose industry when trade costs are reduced. The smallest country loses industry in both cases, but only experiences lower welfare in the case of lower relocation costs. Thus, the ranking of the policies from the point of view of the two small and intermediate countries tends to be the opposite.

Place, publisher, year, edition, pages
2012. Vol. 56, no 4, 747-756 p.
Keyword [en]
Agglomeration, Firm heterogeneity, Multi-country model, Trade liberalisation, Relocation costs
National Category
URN: urn:nbn:se:su:diva-80085DOI: 10.1016/j.euroecorev.2012.01.006ISI: 000304688200007OAI: diva2:555527


Available from: 2012-09-20 Created: 2012-09-12 Last updated: 2012-09-20Bibliographically approved

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Forslid, Rikard
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