Working Paper: CEPR ID: DP1292
Authors: Philippe Martin; Gianmarco I. P. Ottaviano
Abstract: This paper describes the possible impact of multi-speed integration on the location of economic activities in Europe. We present a model where two countries integrate their economies and leave a third temporarily outside because of its lower income. We analyse the effect of different integration sequences on industrial location and convergence during the transition period and in the long term, with and without agglomeration economies. Without agglomeration economies, income differentials at the time of integration are the main determinant of industry location. A long transition period may then be called for to avert concentration in the core countries. On the contrary, with migration the temporary exclusion of the poor country may trigger agglomeration in the rich integrated core.
Keywords: multispeed integration; location; agglomeration; convergence
JEL Codes: F15; F21; R12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Income differentials at the time of integration (J79) | Industry location (L89) |
| Long transition period (P39) | Prevent concentration in core countries (F29) |
| Temporary exclusion of poorer country (F35) | Relocation of firms towards integrated area (R32) |
| Exclusion of country with agglomeration economies (R12) | Exacerbate income divergence (F62) |
| Conditioning transition period on income convergence (F16) | Prevent excluded country from achieving integration (F55) |
| Policymakers' belief in agglomeration economies (R11) | Multispeed approach to integration may be beneficial (C69) |
| Presence of agglomeration economies (R11) | Cumulative agglomeration in core (R12) |
| Cumulative agglomeration in core (R12) | Long-term divergence between regions (R12) |