Working Paper: CEPR ID: DP1961
Authors: Anthony J. Venables
Abstract: We consider a model with a continuum of industries in which agglomeration forces cause each industry to concentrate in a single country. We study the division of industries between countries and show that this division is not unique, so that even with identical countries and symmetric industries the number of industries in each country need not be equal. Unequal divisions are sustainable as equilibria, even though they imply different wages in the two countries, and we find the bounds on the set of equilibrium divisions. With Ricardian differences in technology, there are equilibria in which industries operate in the country in which they have a comparative disadvantage. In both cases, a country may gain by using policy to grab a higher proportion of world industry.
Keywords: industrial clustering; agglomeration; comparative advantage
JEL Codes: F10; F12; R12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Agglomeration forces (R32) | Industries concentrate in a single country (L69) |
| Industries concentrate in a single country (L69) | Division of industries is not unique (L69) |
| Division of industries is not unique (L69) | Real income differences (F61) |
| Industries may operate in countries with comparative disadvantage (F14) | Challenges traditional trade models (F12) |
| Policy measures (E64) | Higher wages and transport savings (J31) |
| Attracting more industries (O25) | Potential output restrictions from over-concentration (D30) |