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Trade and Endogenous Formation of Regions in a Developing Country

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  • Thomas Gries
  • Wim Naude

Abstract

The authors present a model of regional catching‐up and development without scale effects. Regional growth is driven by technological imitation which is determined by positive externalities from international trade, the regions’ geography, and regional institutions. For the two regions considered, factor endowments are immobile land and human capital which is perfectly mobile between the two regions. Endogenous formation of regions is analyzed by introducing a non‐symmetric decrease in international transaction costs, reflecting the different geography and institutions in the two regions. Using panel data from 354 South African magisterial districts over the period 1996 to 2000, we find that geography is important in explaining trade patterns. As predicted, regions that are larger in terms of economic size, with good foreign market access and know‐how of foreign markets, competitive transport costs and a good local institutional support framework will be more successful in exporting manufactured goods than other regions.

Suggested Citation

  • Thomas Gries & Wim Naude, 2008. "Trade and Endogenous Formation of Regions in a Developing Country," Review of Development Economics, Wiley Blackwell, vol. 12(2), pages 248-275, May.
    • Handle: RePEc:bla:rdevec:v:12:y:2008:i:2:p:248-275
    DOI: 10.1111/j.1467-9361.2007.00382.x
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    References listed on IDEAS

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    1. Baldwin, Richard E. & Martin, Philippe, 2004. "Agglomeration and regional growth," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 60, pages 2671-2711, Elsevier.
    2. Stephen Redding & Anthony Venables, 2004. "Geography and Export Performance: External Market Access and Internal Supply Capacity," NBER Chapters, in: Challenges to Globalization: Analyzing the Economics, pages 95-127, National Bureau of Economic Research, Inc.
    3. Henry Overman & Stephen Redding & Anthony J. Venables, 2001. "The Economic Geography of Trade, Production, and Income: A Survey of Empirics," CEP Discussion Papers dp0508, Centre for Economic Performance, LSE.
    4. Veblen, Thorstein, 1915. "Imperial Germany and The Industrial Revolution," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number veblen1915.
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    Cited by:

    1. T. Gries & R. Grundmann & I. Palnau & M. Redlin, 2017. "Innovations, growth and participation in advanced economies - a review of major concepts and findings," International Economics and Economic Policy, Springer, vol. 14(2), pages 293-351, April.
    2. Bakar Normizan & Ishii Yasunori, 2014. "Export Competition between Landlocked and Coastal Countries: An Analysis of Strategic Export Policies," Review of Development Economics, Wiley Blackwell, vol. 18(4), pages 804-812, November.
    3. Marianne Matthee & Wim Naudé, 2008. "The Determinants of Regional Manufactured Exports from a Developing Country," International Regional Science Review, , vol. 31(4), pages 343-358, October.
    4. Mitton, Todd, 2016. "The wealth of subnations: Geography, institutions, and within-country development," Journal of Development Economics, Elsevier, vol. 118(C), pages 88-111.
    5. T. Gries & R. Grundmann & I. Palnau & M. Redlin, 2018. "Technology diffusion, international integration and participation in developing economies - a review of major concepts and findings," International Economics and Economic Policy, Springer, vol. 15(1), pages 215-253, January.
    6. Wim Naudé & Maarten Bosker & Marianne Matthee, 2010. "Export Specialisation and Local Economic Growth," The World Economy, Wiley Blackwell, vol. 33(4), pages 552-572, April.
    7. Gries, T. & Grundmann, R. & Palnau, I. & Redlin, M., 2015. "Does technological change drive inclusive industrialization? : A review of major concepts and findings," MERIT Working Papers 2015-044, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).

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