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Firm Heterogeneity and Location Choice

Author

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  • Toshihiro Okubo

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

Abstract

Heterogeneity in firm productivity affects the location patterns of firm and agglomeration. Here we provide an economic geography model, involving forward and backward linkages driven by the migration of a footloose entrepreneur (capital owner) with different productivity. As a result we find a sorting equilibrium characterised by co-agglomeration of similar productivity firms, however, in contrast to previous studies, unproductive firms are more likely to agglomerate than their more productive counterparts. This is due to the increasingly severe competition induced by productive firms. Productive firms prevent severe local competition through their co-agglomeration. In terms of social welfare, although the sorting equilibrium involves higher social welfare than a perfectly symmetric pattern of firm location, the market outcome is sub-optimal and induces too much agglomeration.

Suggested Citation

  • Toshihiro Okubo, 2010. "Firm Heterogeneity and Location Choice," Discussion Paper Series DP2010-11, Research Institute for Economics & Business Administration, Kobe University.
  • Handle: RePEc:kob:dpaper:dp2010-11
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    File URL: https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2010-11.pdf
    File Function: First version, 2010
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    Citations

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    Cited by:

    1. Fabien Candau & Elisa Dienesch, 2015. "Spatial distribution of skills and regional trade integration," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 54(2), pages 451-488, March.
    2. Fabien Candau & Elisa Dienesch, 2015. "Spatial distribution of skills and regional trade integration," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 54(2), pages 451-488, March.
    3. Xi, Qiangmin & Sun, Ruidong & Mei, Lin, 2021. "The impact of special economic zones on producer services productivity: Evidence from China," China Economic Review, Elsevier, vol. 65(C).

    More about this item

    Keywords

    Heterogeneous firms; Footloose entrepreneurs; Competition; Productivity; Economic geography;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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