Working Paper: CEPR ID: DP1656
Authors: Rodney D. Ludema; Ian Wooton
Abstract: We examine the consequences of increased economic integration between nations within a region. We adopt Krugman?s economic-geography model in which demand linkages can generate agglomeration of manufacturing activity. Manufacturing labour is assumed to be imperfectly mobile between countries. This constrains the forces of agglomeration within the region and suggests that the model may be applicable to Europe. We show that trade liberalisation may lead initially to partial agglomeration, then a re-industrialisation of the periphery. This argues in favour of a sequential approach to integration, with trade barriers being eliminated prior to a reduction in impediments to factor mobility.
Keywords: economic integration; economic geography; factor mobility; international trade
JEL Codes: F12; F15; F22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| reduced trade barriers (F15) | increased industrial concentration (L69) |
| trade liberalization (F13) | agglomeration (R11) |
| agglomeration (R11) | reindustrialization (L52) |
| trade liberalization (F13) | reindustrialization (L52) |
| policy sequencing (D78) | labor market outcomes (J48) |
| imperfect mobility of manufacturing labor (J69) | agglomeration (R11) |