DP3129 Globalization, Industrial Policy and Clusters

Author(s):	Rikard Forslid, Karen-Helene Ulltveit-Moe
Publication Date:	January 2002
Keyword(s):	economic geography, globalization, industrial clusters, industrial policy
JEL(s):	F12, F15, F20, H20, R13
Programme Areas:	International Trade and Regional Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=3129

This Paper analyses industrial policy in a high wage open economy hosting an agglomeration consisting of vertically linked upstream and downstream firms. We show that optimal policy towards upstream industries typically differ from the optimal policy towards downstream industries. Internationalization impacts on the costs as well as on the benefits related to sustaining an industrial agglomeration. Whether maintaining the agglomeration is compatible with a welfare maximizing policy is shown to depend on level of economic integration.