DP9413 Which Firms are Left in the Periphery? - Spatial Sorting of Heterogeneous Firms with Scale Economies in Transportation
|Author(s):||Rikard Forslid, Toshihiro Okubo|
|Publication Date:||March 2013|
|Keyword(s):||heterogeneous firms, scale economies in transportation|
|Programme Areas:||International Trade and Regional Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=9413|
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.