Working Paper: CEPR ID: DP4152
Authors: Masahisa Fujita; Jacques-François Thisse
Abstract: This Paper focuses on two distinct facets of globalization: the decrease in the trade costs of goods and the decline of communication costs between headquarters and production facilities within firms. When the unskilled have about the same wage in the two regions, the decrease of these costs fosters the gradual agglomeration of plants in the core region accommodating the headquarters. By contrast, when the wage gap is significant, the process of integration eventually triggers the relocation of plants into the periphery. In particular, when falling communication costs drives the process of relocation, the welfare of all workers living in the core goes down whereas the welfare of those who reside in the periphery rises.
Keywords: agglomeration; communication costs; headquarters; information technologies; plants; relocation; supply chain
JEL Codes: F12; L13; R13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| decrease in trade costs (F19) | agglomeration of plants in core regions (R11) |
| decrease in communication costs (L96) | agglomeration of plants in core regions (R11) |
| significant wage gaps (J31) | relocation of plants to peripheral regions (R11) |
| decrease in communication costs (L96) | relocation of plants to peripheral regions (R11) |
| relocation of plants to peripheral regions (R11) | decline in welfare for workers in core regions (F66) |
| relocation of plants to peripheral regions (R11) | increase in welfare for workers in peripheral regions (D69) |
| fragmentation (F12) | decrease in welfare for skilled and unskilled workers in core (F66) |
| globalization (F60) | redistributive consequences (H23) |