Trade and Industrial Location with Heterogeneous Labor

June 1, 2004

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Format: Chicago

Trade and Industrial Location with Heterogeneous Labor, (USA: International Monetary Fund, 2004) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We show in the context of a new economic geography model that when labor is heterogenous trade liberalization may lead to industrial agglomeration and interregional trade. Labor heterogeneity gives local monopoly power to firms but also introduces variations in the quality of the job match. Matches are likely to be better when there are more firms and workers in the local market, giving rise to an agglomeration force that can offset the forces against trade costs and the erosion of monopoly power. We derive analytically a robust agglomeration equilibrium and illustrate its properties with numerical simulations.

Subject: Economic sectors, Labor, Labor force, Labor supply, Manufacturing, Wages

Keywords: Agglomeration, Equilibrium output level, Firms employ, Firm's output, Interregional trade, Labor force, Labor market, Labor supply, Manufacturing, Manufacturing firm, Matching, Monopoly power, Spatial mismatch, Trade cost, Utility function, Wages, WP

Publication Details

Pages:

26
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2004/103
Stock No:

WPIEA1032004
ISBN:

9781451852721
ISSN:

1018-5941

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