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THE PROXIMITY–CONCENTRATION TRADE‐OFF WITH ASYMMETRIC COUNTRIES *
Author(s) -
TOULEMONDE ERIC
Publication year - 2011
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/j.1467-9957.2009.02160.x
Subject(s) - economics , welfare , multinational corporation , production (economics) , international economics , microeconomics , market economy , finance
In a model with two countries of different size, we examine the effects of a fall in trade costs on firms' location, on their number of plants, on their production and on regional production and welfare. The possibility to run several plants reduces the strength of the home market effect. Regional production and welfare may move non‐monotonically with trade costs. We extend the model to endogenize country sizes. We show that there exists a continuum of equilibria with multinational firms and that a rent can be taxed by governments. We precisely identify how different parameters affect the results.