DP2118 Comparative Advantage and the Location of Production

Author(s):	Rikard Forslid, Ian Wooton
Publication Date:	March 1999
Keyword(s):	Comparative Advantage, Economic Geography, Factor Mobility, International Trade
JEL(s):	F12, F15, F22
Programme Areas:	International Trade and Regional Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=2118

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.