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The spatial selection of heterogeneous quality: An approach using different demand elasticities

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  • Ching-mu Chen
  • Dao-Zhi Zeng

Abstract

type="main" xml:lang="en"> This paper incorporates heterogeneous demand elasticities and the quality/skill complementarity of production in a footloose capital model in order to explain the spatial selection of firms with differentiated quality. We find that when trade becomes freer, high-quality firms agglomerate in the region that accommodates more high-skilled labor, whereas low-quality firms move to the region that hosts more low-skilled labor. If trade freeness is high, the spatial separation of high- and low-quality firms occurs. This paper also points out the positive effect of integration on welfare owing to the specialization of product quality.

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  • Ching-mu Chen & Dao-Zhi Zeng, 2014. "The spatial selection of heterogeneous quality: An approach using different demand elasticities," International Journal of Economic Theory, The International Society for Economic Theory, vol. 10(2), pages 179-202, June.
    • Handle: RePEc:bla:ijethy:v:10:y:2014:i:2:p:179-202
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    Cited by:

    1. Juin-Jen Chang & Yi-Ling Cheng & Shin-Kun Peng, 2017. "Social comparisons in consumption, international capital flows and tax competition," International Journal of Economic Theory, The International Society for Economic Theory, vol. 13(1), pages 47-71, March.

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