Working Paper: CEPR ID: DP1309
Authors: Diego Puga; Anthony J. Venables
Abstract: This paper considers the location effects of geographically-discriminatory trade policy. A preferential move towards a customs union attracts industry to the integrating countries. When internal barriers fall below some critical level, input-output links between imperfectly competitive firms lead some customs union countries to gain industry at the expense of others. Closer integration can bring converging industrial development to the union. A hub-and-spoke arrangement favours location in the hub, with better reciprocal access to spoke nations than to each other. Further liberalization induces agglomeration in the hub and may trigger disparities between the spokes.
Keywords: integration; customs union; hub-and-spoke; agglomeration
JEL Codes: F12; F15; R12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| customs union formation (F15) | industrial location (R32) |
| internal barriers falling below a critical level (F55) | agglomeration (R11) |
| preferential trading arrangements (F13) | welfare levels (I30) |
| integration progress (F15) | convergence of welfare levels (I30) |
| hub-and-spoke arrangement (L93) | shift of industrial production towards the hub (O14) |
| trade policy changes (F13) | equilibrium location of industry (R32) |