On the development strategy of countries of intermediate size-An analysis of heterogeneous firms in a multi-region framework

Rikard Forslid, Toshihiro Okubo

Research output: Contribution to journalArticle

5 Citations (Scopus)

Abstract

This paper compares two policies: trade cost reduction and firm relocation cost reduction using a three-country version of a heterogeneous-firms geography and trade model, where the three countries have different market (population) sizes. We show how the effects of the two policies differ, in particular for the country of intermediate size. Unless the intermediate country is very small, in a relative sense, it will gain industry when relocation costs are reduced, but lose industry when trade costs are reduced. The smallest country loses industry in both cases, but only experiences lower welfare in the case of lower relocation costs. Thus, the ranking of the policies from the point of view of the two small and intermediate countries tends to be the opposite.

Original languageEnglish
Pages (from-to)747-756
Number of pages10
JournalEuropean Economic Review
Volume56
Issue number4
DOIs
Publication statusPublished - 2012 May 1

    Fingerprint

Keywords

  • Agglomeration
  • Firm heterogeneity
  • Multi-country model
  • Relocation costs
  • Trade liberalisation

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Cite this