Working Paper: CEPR ID: DP9413
Authors: Rikard Forslid; Toshihiro Okubo
Abstract: This paper introduces scale economies or density economies in transportation in a trade and geography model with heterogeneous firms. This relatively small change to the standard model produces a new pattern of spatial sorting among firms. Contrary to the existing literature, our model produces the result that firms of intermediate productivity relocate to the large core region, whereas high and low productivity firms remain in the periphery. Trade liberalisation leads to a gradual relocation to the core, with the most productive firms remaining in the periphery.
Keywords: Heterogeneous Firms; Scale Economies in Transportation
JEL Codes: F12; F15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Scale economies in transportation (L91) | firms of intermediate productivity relocating to core regions (R32) |
| Scale economies in transportation (L91) | high and low productivity firms remain in the periphery (R32) |
| Trade liberalization (F13) | relocation from peripheral to core regions (R23) |
| Trade liberalization (F13) | most productive firms being the last to leave the periphery (D21) |
| Different degrees of scale economies among industrial sectors (F12) | varying spatial sorting patterns (C69) |