Working Paper: CEPR ID: DP1015
Authors: Paul Krugman; Anthony J. Venables
Abstract: The paper considers a model in which an imperfectly competitive manufacturing sector produces goods which are used both for final consumption and as intermediates. Intermediate usage creates cost and demand linkages between firms and a tendency for manufacturing agglomeration. How does globalization affect the location of manufacturing and the gains from trade? At high transport costs all countries have some manufacturing industry, but when transport costs fall below a critical value a core-periphery pattern forms spontaneously, and nations that find themselves in the periphery suffer a decline in real income. As transport costs continue to fall there comes a second stage of convergence in real incomes, in which the peripheral nations gain and the core nations may well lose.
Keywords: globalization; integration; agglomeration
JEL Codes: F1; F12; F15; R3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| transport costs (L91) | real wages (core nations) (J31) |
| transport costs (L91) | real wages (peripheral nations) (F16) |
| transport costs (L91) | core-periphery pattern (R12) |
| core-periphery pattern (R12) | real wages (core nations) (J31) |
| core-periphery pattern (R12) | real wages (peripheral nations) (F16) |
| transport costs (L91) | uneven development (O11) |
| uneven development (O11) | first-world living standards concerns (I31) |
| transport costs (L91) | second stage of convergence (F62) |
| second stage of convergence (F62) | real wages (peripheral nations) (F16) |
| second stage of convergence (F62) | real wages (core nations) (J31) |