Title
The spatial selection of heterogeneous firms
Abstract
@@The aim of this paper is to study the spatial selection of firms once it is recognized
that heterogeneous firms typically choose different locations in respond to market
integration of regions having different sizes. Specifically, we show that decreasing
trade costs leads to the gradual agglomeration of efficient firms in the large region
because these firms are able to survive in a more competitive environment. In
contrast, high-cost firms seek protection against competition from the efficient firms
by establishing themselves in the small region. However, when the spatial separation
of markets ceases to be a sufficient protection against competition from the low-cost
firms, high-cost firms also choose to set up in the larger market where they have
access to a bigger pool of consumers. This leads to the following prediction: the
relationship between economic integration and interregional productivity differences
first increases and then decreases with market integration.
Keywords: firm heterogeneity; spatial selection; trade liberalization
JEL Classification: F12; H22; H87; R12
Toshihiro OKUBO
Research Institute for Economics and Business Administration
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501
Japan
Phone: (81) 78 803 7036
Fax: (81) 78 803 7059
Pierre M. PICARD
University of Manchester (United Kingdom) and CORE, Université catholique de Louvain (Belgium)
Jacques-François THISSE
CORE, Université catholique de Louvain (Belgium), PSE (France) and CEPR