Working Paper: CEPR ID: DP1699
Authors: Gianmarco I.P. Ottaviano; Diego Puga
Abstract: This review of recent contributions reveals common conclusions about the effects of integration on location. For high trade costs the need to supply markets locally encourages firms to spread across different regions. Integration weakens the incentives for self-sufficiency and for intermediate values of trade costs pecuniary externalities induce firms and workers to cluster together, turning location into a self-reinforcing process. Agglomeration raises the price of immobile local factors and goods, however, so for low transport costs, firms may spread to regions where those prices are lower.
Keywords: economic geography; location; agglomeration; integration; migration; linkages
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 |
|---|---|
| High trade costs (F12) | Spatial dispersion (C21) |
| Intermediate trade costs (F12) | Firm clustering (R30) |
| Decrease in trade costs (F19) | Price of local factors rises (F16) |
| Price of local factors rises (F16) | Further agglomeration (R11) |
| Low transport costs (L91) | Spread to regions with lower prices (R12) |
| Economic integration (F15) | Spatial location of economic activities (R32) |
| Centrifugal and centripetal forces change with integration (C69) | Spatial location of economic activities (R32) |