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Spatial inequality, globalization, and footloose capital

Author

Listed:
  • Toshiaki Takahashi
  • Hajime Takatsuka
  • Dao-Zhi Zeng

Abstract

This paper shows the equivalence of spatial inequalities in industrial location and in income by revisiting the home market effect (HME) without any homogeneous good based on a reconstructed footloose capital model. In this simple framework, spatial inequalities in industrial location and in income are the HMEs in terms of firm share and wage, respectively. We show that the larger country has a more-than-proportionate share of firms and a higher wage. Furthermore, both the wage differential and the industrial location in the larger country evolve in an inverted U-pattern when transport costs decline. Finally, we analytically examine the effects of trade liberalization on the welfare and show that both countries may gain from globalization. Copyright Springer-Verlag 2013

Suggested Citation

  • Toshiaki Takahashi & Hajime Takatsuka & Dao-Zhi Zeng, 2013. "Spatial inequality, globalization, and footloose capital," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 53(1), pages 213-238, May.
    • Handle: RePEc:spr:joecth:v:53:y:2013:i:1:p:213-238
    DOI: 10.1007/s00199-011-0686-7
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    More about this item

    Keywords

    Spatial inequality; Globalization; Home market effect; Footloose capital; F12; R12;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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