Working Paper: CEPR ID: DP4441
Authors: Shinkun Peng; Jacques-François Thisse; Ping Wang
Abstract: The Paper examines the interactions between economic integration and population agglomeration in a middle product economy displaying neoclassical growth. There are two vertically-integrated economies. Each consists of a large number of final good competitive firms operating plants in both regions, and a large number of intermediate goods monopolistically competitive firms operating each in only one region. While immobile workers are employed with intermediate goods to produce the final good, mobile workers are used to design the line of differentiated intermediate good inputs. Capital is immobile and the final good is non-traded, whereas the intermediate goods are traded. We find that employment agglomeration and output growth need not be positively related. Furthermore, trade is not necessarily beneficial to regional growth, whereas trade between the two regions need not be associated with a widened skilled-unskilled wage gap.
Keywords: agglomeration; economic integration; growth; intermediate goods; trade
JEL Codes: D90; F15; O41; R13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Improved efficiency in region 1 (R11) | Employment agglomeration (J60) |
| Employment agglomeration (J60) | Output growth (O40) |
| Opening economies to trade (F43) | Employment agglomeration (J60) |
| Opening economies to trade (F43) | Output growth (O40) |
| Trade liberalization (F13) | Skilled-unskilled wage gap (J31) |