International trade and internal geography revisited

Trade liberalization and trade policy obviously affect the internal distribution of economic activities within a liberalizing country. We show that the impact of decreasing international trade costs on the regional distributionof economic activities crucially depends on the value of transport costs internalto the country. Trade liberalization in developing countries with poor internal infrastructures and small volumes of interregional trade is likely to increase regional disparities, while developed countries with good internalinfrastructures and large volumes of interregional trade are likely to experienceredispersion. We argue that the way transport and trade costs are modeledmight have a crucial impact on the results obtained.