Working Paper: CEPR ID: DP3366
Authors: Mary Amiti; Christopher Pissarides
Abstract: We show in the framework of a new economic geography model that when labour is heterogenous and productivity depends on the quality of the match between job and worker, trade liberalization may lead to industrial agglomeration and inter-industry trade. The agglomeration force is the improvement in the quality of matches when firms recruit from a bigger pool of labour. The forces against agglomeration are the existence of trade costs and monopoly power in the labour market. We show that more heterogeneity in skills attracts both firms and workers to bigger markets and supports agglomeration at higher trade costs.
Keywords: agglomeration; interregional trade; matching; spatial mismatch
JEL Codes: F12; J41; R12; R13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trade liberalization (F13) | industrial agglomeration (R32) |
| labor heterogeneity (J79) | industrial agglomeration (R32) |
| matching quality (L15) | industrial agglomeration (R32) |
| trade costs (F19) | industrial agglomeration (R32) |
| monopoly power (D42) | industrial agglomeration (R32) |
| labor heterogeneity (J79) | matching quality (L15) |
| trade liberalization + labor heterogeneity (F66) | industrial agglomeration (R32) |