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
JEL(s): F12, F15
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.