Working Paper: CEPR ID: DP12352
Authors: Kiminori Matsuyama
Abstract: This paper proposes a theoretical framework, which allows us to study the effects of geographical factors on the distribution of industries across many regions. The geographical feature of each region is summarized by a proximity matrix, whose elements measure the closeness between every pair of regions and depend on the parameters representing the transport and other costs of using a variety of trade routes. A change in these costs of trade affects the distribution of industries by amplifying the geographical advantages and disadvantages of regions. Through a series of examples, we demonstrate how this framework can be used not only to examine the effects of an improvement in transport infrastructure, but also to address some problems from economic history, regional economic integration, and the north-south division, and discuss some geopolitical issues.
Keywords: monopolistic competition; a multiregion model of costly trade in differentiated goods; home market effect; regional economic integration; uneven development; convergence versus divergence; geographical advantages and disadvantages; proximity matrix; trade routes
JEL Codes: F12; F15; O11; R12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Reduction in transport costs (L91) | More uneven distribution of industries across regions (R12) |
| Geographical asymmetries (R12) | Amplify effects of trade costs on industry distribution (F12) |
| Changes in trade costs (F12) | Impact on industry distribution (F61) |