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Trade and Industrial Location with Heterogeneous Labor

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  • Mary Amiti
  • Christopher A. Pissarides

Abstract

We show in the framework of a new economic geography model that when labor is heterogenous and productivity depends on the quality of the match between job and worker, trade liberalization may lead to industrial agglomeration and inter-industry trade. The agglomeration force is the improvement in the quality of matches when firms recruit from a bigger pool of labor. The forces against agglomeration are the existence of trade costs and monopoly power in the labor market. We show that more heterogeneity in skills attracts both firms and workers to bigger markets and supports agglomeration at higher trade costs.

Suggested Citation

  • Mary Amiti & Christopher A. Pissarides, 2002. "Trade and Industrial Location with Heterogeneous Labor," CEP Discussion Papers dp0541, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:cepdps:dp0541
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    References listed on IDEAS

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    1. Mary Amiti & Lisa Cameron, 2007. "Economic Geography and Wages," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 15-29, February.
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    More about this item

    Keywords

    agglomeration; matching; spatial mismatch; inter-regional trade;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies

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