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

• Gianmarco Ottaviano Andrea Lamorgese Takatoshi Tabuchi Kristian Behrens
23 Jun 2005

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.