Trade and Location with Horizontal and Vertical Multi-region Firms |
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Authors: | Karolina Ekholm & Rikard Forslid |
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Institution: | Stockholm School of Economics, SE-113 83 Sweden,;University of Stockholm, SE-106 91 Stockholm, Sweden |
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Abstract: | We analyse the effect on agglomeration tendencies of allowing multi-region firms in a standard trade and location model, the core–periphery (CP) model developed by Kurgman (1991). The introduction of horizontal multi-region firms mitigates the agglomeration effects found in the CP model by reducing the range of trade costs for which the core–periphery equilibrium occurs. The introduction of vertical multi-region firms that separate the location of headquarters and plants has two counteracting effects. While headquarters exhibit a strong tendency to concentrate, plants tend to spread out. The equilibrium is always asymmetric in spite of the underlying symmetry of the model. |
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Keywords: | trade location agglomeration multinational firms |
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