The spatial selection of heterogeneous firms

Toshihiro Okubo, Pierre M. Picard, Jacques François Thisse

Research output: Contribution to journalArticle

36 Citations (Scopus)

Abstract

We show that heterogeneous firms choose different locations in response to market integration. Specifically, decreasing trade costs lead to the gradual agglomeration of efficient firms in the larger country where they have access to a bigger pool of consumers. In contrast, high-cost firms seek protection against competition from efficient firms by locating in the smaller country. However, when the spatial separation of markets ceases to be a sufficient protection against foreign competition, high-cost firms choose to set up in the larger market. Hence, the relationship between economic integration and international productivity gap first increases and then decreases with market integration.

Original languageEnglish
Pages (from-to)230-237
Number of pages8
JournalJournal of International Economics
Volume82
Issue number2
DOIs
Publication statusPublished - 2010 Nov 1

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Keywords

  • Economic geography
  • Firm heterogeneity
  • Spatial selection
  • Trade liberalization

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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