Location of industry, market size, and imperfect international capital mobility

This paper examines the impact of imperfect international capital mobility on an industrial location when increasing returns are present. When the international capital mobility is perfect, agglomeration of manufacturing firms progresses with a decline in transportation costs of manufactured goods, and full-agglomeration in a large-market country is observed at low transportation costs. In contrast, when international capital mobility is imperfect, agglomeration in a large-market country progresses with capital trade integration. When the transportation costs of manufactured goods are low, all capital holders in two countries invest their capital into a home market.