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Trade and location: A moving example motivated by Japan

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  • Alan V. Deardorff

Abstract

If trade costs matter for trade, and if distance matters for at least some trade costs, then location matters for trade. This may be especially important for Japan, given its distance from other developed countries and proximity to a number of developing countries. This paper explores the relationship between location and trade in a simple partial equilibrium model of a single homogeneous good that may be produced and traded by three countries located on a plane. Six equilibrium regimes arise in this model, depending on trade costs compared to differences in autarky prices. The results are the following: For a country whose autarky price lies between those of the other countries, it will export the good if it is close to the high-cost country, import it if it is close to the low-cost country, and not trade it at all if it is too far from both. The location of such a country is also important for the trade of the other countries. Finally, although a fall in trade costs increases, up to a point, the geographic scope for a country to trade, beyond that point it cannot make trade possible for an intermediate-cost country that is too remote to trade. The results suggest that Japan, with factor endowments similar to other developed countries but located closer to many developing countries, should dominate trade with its developing-country neighbors.

Suggested Citation

  • Alan V. Deardorff, 2004. "Trade and location: A moving example motivated by Japan," Hi-Stat Discussion Paper Series d04-56, Institute of Economic Research, Hitotsubashi University.
  • Handle: RePEc:hst:hstdps:d04-56
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    File URL: http://hi-stat.ier.hit-u.ac.jp/research/discussion/2004/pdf/D04-56.pdf
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    References listed on IDEAS

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    1. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 691-751, September.
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    8. Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 339-412, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Head, Keith & Ries, John, 2005. "Judging Japan's FDI: The verdict from a dartboard model," Journal of the Japanese and International Economies, Elsevier, vol. 19(2), pages 215-232, June.
    2. Hui-Ying Sng & Liyu Dou & Pradumna Bickram Rana, 2017. "Catalyst Of Business Cycle Synchronization In East Asia," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 62(03), pages 703-719, June.

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    More about this item

    Keywords

    Trade costs; Location;

    JEL classification:

    • F1 - International Economics - - Trade

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