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Ricardian Comparative Advantage and Geographical Concentration
Author(s) -
Okubo Toshihiro
Publication year - 2011
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/j.1467-9361.2011.00631.x
Subject(s) - economics , comparative advantage , externality , diversification (marketing strategy) , wage , returns to scale , economic interventionism , general equilibrium theory , microeconomics , economic geography , international trade , labour economics , production (economics) , business , marketing , politics , political science , law
This paper analyses geographical concentration using the continuum‐of‐goods trade model in the presence of labor migration, Ricardian comparative advantage and Marshallian‐type external increasing returns to scale. The findings show that higher transportation costs lead to concentration in one region, and lower transportation costs lead to diversification between the regions. For intermediate transportation costs, asymmetric diversification becomes a stable equilibrium in which the smaller population region has higher wage rates and a smaller externality, and vice versa. However, because the asymmetric equilibrium is an inefficient outcome, it leaves room for government intervention.