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Trade and industrial location with heterogeneous labor

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  • Amiti, Mary
  • Pissarides, Christopher

Abstract

We show in the context of a new economic geography model that when labor is heterogenous trade liberalization may lead to industrial agglomeration and inter-regional 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 which 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.

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  • Amiti, Mary & Pissarides, Christopher, 2005. "Trade and industrial location with heterogeneous labor," LSE Research Online Documents on Economics 2475, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:2475
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    More about this item

    Keywords

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

    JEL classification:

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

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