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Footloose Capital and Comparative Advantage
Author(s) -
Matsuoka Yuji,
Kikuchi Toru
Publication year - 2012
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/1468-0106.12004
Subject(s) - comparative advantage , economics , manufacturing sector , homogeneous , liberalization , disadvantage , capital (architecture) , manufacturing , capital equipment , agriculture , economic geography , international economics , international trade , industrial organization , business , market economy , history , ecology , physics , archaeology , marketing , biology , political science , law , thermodynamics
We investigate the effect of country size differentials and R icardian technology differences on firms’ location decisions using a two‐country, two‐good (homogeneous agricultural good and differentiated manufacturing products), two‐factor (labour and footloose capital) simple new economic geography model. We found that manufacturing firms may agglomerate in a country where the manufacturing sector has a comparative disadvantage. In addition, when country size differentials and Ricardian technology differences exist between two countries, the key factor influencing firms’ location decisions changes according to the level of trade liberalization, from being market size‐dependent to becoming technology‐dependent.