Working Paper: CEPR ID: DP13381
Authors: Rikard Forslid; Toshihiro Okubo
Abstract: This paper introduces spatial sorting of heterogeneous entrepreneurs (firms) in the 'footloose entrepreneur' trade and geography model. The model generates agglomeration from a uniform space contrary to the 'footloose capital' model. The model also generates spatial sorting in reverse productivity order with the least productive entrepreneur being the first to relocate.
Keywords: agglomeration; heterogeneous firms; trade liberalization
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 |
|---|---|
| Trade liberalization (F13) | Agglomeration starting from a symmetric equilibrium (D59) |
| Least productive entrepreneurs relocate first (L26) | Spatial sorting pattern opposite to that of the footloose capital model (R32) |
| Decrease in trade costs (F19) | Likelihood of agglomeration increases (R11) |
| Introduction of heterogeneous firms (F12) | More gradual agglomeration process (R11) |
| Trade costs decrease (F11) | Threshold for agglomeration influenced by heterogeneity of firms (F12) |