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Trade liberalisation and agglomeration with firm heterogeneity: Forward and backward linkages

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  • Okubo, Toshihiro

Abstract

This paper studies the impact of trade cost reductions on the geographical concentration of manufacturing in the presence of intermediate input linkages, firm heterogeneity and fixed export costs. The presence of non-exporting firms in this Melitz-like model hampers full agglomeration by weakening the forward and backward linkages and fortifying market-crowding effect. Gradual trade liberalisation causes gradual agglomeration rather than the catastrophic agglomeration that economic geography models have long suggested. Also, trade liberalisation produces divergent welfare effects with the periphery losing and the core gaining; even costless trade fails to equalise welfare in the core and periphery due to non-exported intermediate inputs.

Suggested Citation

  • Okubo, Toshihiro, 2009. "Trade liberalisation and agglomeration with firm heterogeneity: Forward and backward linkages," Regional Science and Urban Economics, Elsevier, vol. 39(5), pages 530-541, September.
    • Handle: RePEc:eee:regeco:v:39:y:2009:i:5:p:530-541
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    Cited by:

    1. Rikard Forslid & Toshihiro Okubo, 2015. "Which Firms Are Left In The Periphery? Spatial Sorting Of Heterogeneous Firms With Scale Economies In Transportation," Journal of Regional Science, Wiley Blackwell, vol. 55(1), pages 51-65, January.
    2. Hangtian Xu & Yiming Zhou, 2023. "Inter-industry trade and heterogeneous firms: country size matters," The Japanese Economic Review, Springer, vol. 74(1), pages 57-81, January.
    3. von Ehrlich, Maximilian & Seidel, Tobias, 2013. "More similar firms — More similar regions? On the role of firm heterogeneity for agglomeration," Regional Science and Urban Economics, Elsevier, vol. 43(3), pages 539-548.
    4. Toshihiro Okubo, 2012. "Antiagglomeration Subsidies With Heterogeneous Firms," Journal of Regional Science, Wiley Blackwell, vol. 52(2), pages 285-299, May.
    5. Richard E. Baldwin & Toshihiro Okubo, 2014. "Tax Competition with Heterogeneous Firms," Spatial Economic Analysis, Taylor & Francis Journals, vol. 9(3), pages 309-326, September.
    6. Kristian Behrens & Frédéric Robert-Nicoud, 2008. "Survival of the Fittest in Cities: Agglomeration, Selection and Polarisation," SERC Discussion Papers 0012, Centre for Economic Performance, LSE.
    7. Rikard FORSLID & OKUBO Toshihiro, 2017. "Early Agglomeration or Late Agglomeration? Two phases of development with spatial sorting," Discussion papers 17001, Research Institute of Economy, Trade and Industry (RIETI).
    8. Yiming Zhou, 2020. "Heterogeneous firms, urban costs and agglomeration," International Journal of Economic Theory, The International Society for Economic Theory, vol. 16(3), pages 329-348, September.
    9. Sun, Churen & Yu, Zhihao & Zhang, Tao, 2012. "Agglomeration and Trade with Heterogeneous Firms," MPRA Paper 49001, University Library of Munich, Germany, revised 17 Aug 2013.
    10. Richard E. Baldwin & Toshihiro Okubo, 2014. "International Trade, Offshoring and Heterogeneous Firms," Review of International Economics, Wiley Blackwell, vol. 22(1), pages 59-72, February.
    11. Kristian Behrens & Frédéric Robert-Nicoud, 2009. "Survival of the Fittest in Cities: Agglomeration, Polarization, and Income Inequality," Cahiers de recherche 0919, CIRPEE.
    12. Churen Sun & Zhihao Yu & Tao Zhang, 2012. "Agglomeration, Productivity, and Firms¡® Exports: Evidence from Chinese Firm-level Data," ERSA conference papers ersa12p882, European Regional Science Association.

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    More about this item

    Keywords

    Heterogeneous firms Economic geography Gradual agglomeration;

    JEL classification:

    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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