Firms' locations under demand heterogeneity

Pierre M. Picard, Toshihiro Okubo

Research output: Contribution to journalArticle

6 Citations (Scopus)

Abstract

In this paper, we develop an economic geography model in which firms sell product varieties with heterogeneous demands. We show that firms that sell products with higher demand choose to establish their plants in larger countries, which provide better access to the most frequently demanded and valuable varieties. The impact of spatial sorting depends on the skewness of the distribution of demand intensity across varieties. In a model in which only capital moves across regions, demand heterogeneity diminishes the amount of capital invested in larger countries. In a model in which the work force moves across regions, demand heterogeneity is found to eliminate dramatic changes in the location patterns and to result in the asymmetric dispersion of workers rather than their symmetric dispersion or complete agglomeration in a specific region.

Original languageEnglish
Pages (from-to)961-974
Number of pages14
JournalRegional Science and Urban Economics
Volume42
Issue number6
DOIs
Publication statusPublished - 2012 Nov

Keywords

  • Agglomeration
  • Economic geography
  • Heterogeneous taste and quality
  • Home market effect
  • Spatial selection

ASJC Scopus subject areas

  • Economics and Econometrics
  • Urban Studies

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