DP5103 Changes in Infrastructure and Tariff Barriers: Local Vs. Global Impacts

Author(s): Kristian Behrens, Andrea Lamorgese, Gianmarco Ottaviano, Takatoshi Tabuchi
Publication Date: June 2005
Keyword(s): home market effect, imperfect competition, international integration, multi-country trade models, transportation networks
JEL(s): D58, F12, F17, R12
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5103

We develop a multi-country Dixit-Stiglitz model to investigate the impacts of: (i) changes in the international distribution of consumers' expenditure; (ii) decreasing tariffs; and (iii) improvements in transportation infrastructure. We show that, in general, decreasing tariff barriers do not allow for any clear predictions regarding changes in industry location and welfare, whereas this is possible with respect to improvements in transportation infrastructure. In particular, infrastructural improvements have spatially limited impacts when the transportation network is locally described by a tree. Any decrease in transport costs is Pareto welfare enhancing in this case.