Working Paper: CEPR ID: DP2118
Authors: Rikard Forslid; Ian Wooton
Abstract: We return to a familiar topic in international trade, comparative advantage, introducing it into a model of economic geography. We provide a clear counterexample to the familiar result that trade liberalization leads to increased industrial concentration. Instead, lower trade costs may lead to a dispersion of production. As trade barriers diminish, agglomerative forces weaken, leaving room for other influences on the location of production. When a pattern of comparative advantage exists, integration may lead to international specialization of production. This may be good news for peripheral countries, which may be able to retain industry despite the attraction of the core.
Keywords: comparative advantage; 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 |
|---|---|
| trade liberalization (F13) | location of production (R32) |
| lower trade costs (F19) | dispersion of production (D39) |
| comparative advantage (F11) | dispersion of production (D39) |
| lower trade costs (F19) | weaken agglomerative forces (F12) |
| comparative advantage of peripheral regions (F12) | expansion of production in peripheral regions (R11) |
| expansion of production in peripheral regions (R11) | pulling resources away from core regions (R11) |
| trade costs (F19) | location of production (R32) |